The Merchants and the “Money Question”

    Joseph A. Ernst

    From a paper presented at the Bicentennial Conference on Shays’s Rebellion, 1986, sponsored by the Colonial Society of Massachusetts.

    This essay interprets Shays’s Rebellion as a symbolic moment in a century-long conflict over the “money question”—matters of currency, finance, credit, and prices—in the colony and the Commonwealth of Massachusetts. These closely related issues were at the core of a series of struggles, both political-economic and ideological in dimension, by which the great-merchant class of Massachusetts sought to effect monetary and fiscal policy in its own interest. By the middle of the eighteenth century the great merchants had achieved that goal. But the system of money and finance favored by merchants collapsed with the coming of war in 1775, and it would take a concerted effort to reestablish it, under new political circumstances, by the early 1780s. This revived system underlay the conditions responsible for Shays’s Rebellion.

    Specifically, this chapter argues that from the 1690s through the 1780s the great merchants opposed monetary and fiscal plans not under their control or to their liking. They advocated that public and private currency issues should be limited in volume and in duration, and wherever possible be redeemable in specie. These concerns in the decades after Queen Anne’s War led to a seesaw battle with populist political forces, which viewed paper money schemes as a way of generating growth and development and of realizing a vision of entrepreneurial egalitarianism. But by mid-century the leading merchants, in alliance with crown authorities and English creditors, had regained the upper hand, ushering in “the era of public credit.” From this time until the onset of the Revolutionary War, public finance in the Bay Colony approximated the English funding system created in the 1690s. Secure government paper in the form of treasury notes payable by general taxes became available to the great-merchant class as an investment earning interest in specie and as a limited commercial medium of exchange.

    After the Treaty of Paris in 1763, all aspects of the money question in Massachusetts were overshadowed by a succession of political-economic crises and Revolutionary disorders. Yet the Revolution opened up the possibility that the great merchants might extend their dominance over money to other areas of the economy, increasing their power to direct growth and development in their own interest. To this end merchants sympathetic to the Revolution joined with other groups to form a “Merchantile Interest,” which John Adams identified as “comprehending merchants, mechanics, laborers” and “complicated with the landed interest.” With a return to “currency finance” during the Revolutionary War, however, the era of public credit came to an abrupt close, and the “Merchantile Interest” splintered.1

    The era of public credit that ended with Independence offered the model that a new commercial elite of Patriot merchants strived to re-create in the turbulent early years of the war. Their first move was against the state’s paper money system. Pushed to its limits by rising military demands, currency finance had already led to inflation and popular cries for price controls by 1776, threatening both profits and commercial freedom of action. The merchants were relentless therefore in pressing for funding the state’s paper currency and returning to a system of public loans and heavy taxes. The triumph of the merchants’ policies by late 1777 was remarkable; their extension to Continental dollars four years later was no less so.

    Another dimension to this century-long conflict over the money question in Massachusetts was ideological. From the outset matters of currency, finance, credit, and prices were addressed in the broad ideological languages of “Puritanism,” “interest,” and “virtue.” Anti-paper money forces urged a return to the Puritan work ethic as the best way of reducing imports and bringing specie back into circulation. They saw it as only human that man, however capable of virtue and sacrifice of self to the public good, was mainly concerned with the pursuit of selfish interests and the protection of property. Hence, the marketplace could be seen as an instrument both of economic growth and of social order. The proponents of this position were by no means liberal apostles of free trade. Rather, they appraised the state’s role in economic life according to the specific situations they faced. The inflow and outflow of specie during periods of changing trade balances was considered as “natural”; consequently, legislators were expected to endorse the mechanism of the marketplace. On the other hand, it was often necessary to reconcile private interests and the public good through laws protecting property and natural liberty. As it happened, the proper course to pursue would depend on the perceived interests of the great-merchant class.2

    Supporters of paper money adopted the language of virtue, or “oppositionist” ideology. Hammered out in the struggle against the “Financial Revolution” in England, this rhetoric condemned selling the public debt in order to attach the “monied” interest to a corrupt “Court Party.” Spokesmen for Massachusetts’s popular forces likewise stigmatized hard money sympathizers as “monied men,” minions of a Court faction bent upon destroying paper and with it the people’s virtue, well-being, and liberty.3

    The rival ideologies, articulated after Independence, reflected the same contest between social groups and the same competing visions of political economy that had shaped public action on money and finance before the Revolution. Thus it was that the General Court, in its Address to the People in 1786, expressed the great merchants’ long-standing perspective and repudiated the “old” system of currency finance as a species of fraud that cheated widows and orphans. Instead, the legislators offered a “new” conventional wisdom that the commercial interests could now put into place: wars could no longer be fought without sound money, a funded debt, and loans from foreign and domestic investors; and governments could not renege on obligations to their creditors without endangering liberty’s future.4

    In sum, in the new republic as in the former Bay Colony, the great-merchant class sought to implement monetary and fiscal policies suitable to its interests and its ideological outlook. By the end of the Revolutionary War these goals had been achieved. With political power firmly in the hands of the merchants and a reunited “Merchantile Interest,” the response to the Shaysite “Insurgents” seemed a foregone conclusion.

    An inability to meet military expenses in the usual way forced governments in England and New England in the 1690s to initiate financial revolutions. The mother country created history’s first funded debt and the Bank of England, innovations that made monied wealth more accessible than ever to the state. Here, said some, was a “standing miracle in politics”; said others, a speculative triumph at the expense of virtue and honest trade and a source of corruption.5

    Massachusetts faced similar demands. An empty treasury and the difficulty of borrowing money forced the government late in 1690 to turn to currency finance. Merchants discounted the new paper notes, squeezing “poor soldiers and seamen” and raising such a storm that everyone finally agreed to take the money at face value. The General Court, in order to make the notes good for public debts, pledged future taxes as a redemption fund. By 1712, when the practice of accepting paper for private debts was made law, nearly £170,000 in currency was outstanding.6

    In reaction to an imbalanced trade and to currency finance, and in anticipation of continuing and heavy paper issues, merchants began rapidly remitting any coin that came to hand to British creditors. By 1714 specie had drained away, not to return to general circulation before mid-century. At the end of Queen Anne’s War therefore, when the Bay Colony struck an additional £100,000 in currency, the de facto convertibility of silver coin broke down. Silver soared in price, undermining views that paper merely replaced coin swept off in sterling debt payments and causing fears of “the currency of silver and gold entirely ceasing” and the depreciation of paper going on forever. Some voices called for fewer, or no, bills and a return to industry and frugality as a way of cutting luxury imports, redressing trade imbalances, and returning “real” money to circulation. Others cried out for more bills as a medium of trade, or for a private land bank as a means of stimulating agriculture, manufacturing, and commerce and thereby replenishing depleted specie stocks.7

    In this new situation following Queen Anne’s War, the great merchants began groping for a solution to the money question. It would be forty years before developments, which included parliamentary control over New England currency, a monetary, trade, and fiscal crisis, and new wartime demands, came together to resolve the merchants’ problems. Along the way four major considerations stand out: the initial political failure of the great merchants to limit public currency issues; their ideological response to paper money and that of their critics; the division in ranks caused by Rhode Island’s “monetary imperialism” and the reunion of the great merchants when faced with the creation of a private land bank; and above all the merchants’ growing dependence on royal governors and imperial authorities for intervention on their behalf.

    In 1714 promoters came forward with a plan for a private “Bank of Credit.” The bank was the brainchild of several smaller Boston merchant-entrepreneurs and the leaders of Boston’s “Popular Party” interested in an expanding role in New England’s foreign and domestic trade as well as in local manufacturing, shipping, shipbuilding, and fishing and in land speculation in Maine and western Massachusetts. But when the promoters appeared before a joint legislative committee dominated by wealthy merchants and Council members, they found support lined up in favor of a small public bank, which would both produce a revenue and restrict the currency. The promoters answered with a prospectus for a private scheme similar to their own that had surfaced in London in 1688 and called for subscribers. In October proposals for the private bank, capitalized at £300,000, and for a modest £50,000 public loan came before the legislature. The private bank lost in its bid for approval, and when subsequent lobbying efforts for a royal charter also failed, the matter became a dead issue and remained so for a quarter century.8

    Defeat of the Bank of Credit only ended up subverting the great merchants’ control over the currency. The bank’s supporters quickly joined in a populist coalition, expanding the paper money constituency to include agrarians, fishermen, shopkeepers, artisans, and debtors. The coalition supporters in the lower house then made the public bank their own by voting a £100,000 loan issue in the fall of 1716. As the outstanding local currency supply rose to £230,000, and in the common currency area of New England to £310,000, silver and the sterling exchange rate moved to new highs. But in a few years paper fell in volume, leading to cries for another government loan to ease what some saw as a general monetary stringency hampering economic activity.9

    At this point an additional consideration, the nature of money and its relation to the workings of the economy and to morality—that is, to “political economy,” that “branch of the science of a statesman” linking moral philosophy with individual well-being and the wealth and development of state and society—occupied center stage. Between 1719 and 1721 publishers turned out pamphlet after pamphlet debating these matters.10

    The position of commercial opponents of “printed money” and their spokesmen was simple. Specie alone had “intrinsic” value; and no law could make men think “a piece of paper is a piece of money,” especially when the “low esteem of bills” had banished silver and so “raised the price of necessaries” that laborers had to move out of Boston. A drastic reduction of paper money to induce a specie inflow and to make possible a return to hard money was the best of all solutions, they argued; and industry and frugality were the only effective means of creating a favorable trade balance and earning specie abroad. That paper alone could usefully serve as a local means of exchange seemed dubious, but currency issues should in any event be limited to commercial demands.

    Propagandists for paper currency located the root problem in a stringency of money, which—however defined—dampened all economic undertakings. They labeled enemies of another public loan as usurers or worse. John Colman, an old Bank of Credit promoter, went further, dismissing the view that specie was the only real money. It had no more “inherent” worth than iron, tin, brass, or paper; only specie’s “common acceptance” as a medium of exchange by “men in trade” gave it special value. Moreover, like all commodities, gold and silver fluctuated in price according to supply and demand. Here Colman adopted balance of trade reasoning with a vengeance: as long as trade was unbalanced, hard money would remain scarce. Nor would laws banning specie exports and pegging silver prices do any good. They violated the axiom that fair traders should be as free as possible in their dealings; besides, he added, nothing should be done which “may seem to bear hard” on British trade.11

    This ideological debate continued on into 1721, lending support to the political cause of paper. Silver threatened liberty, inclining men to “extortion, dissembling, and other moral evils,” avowed John Wise; paper, the workingman’s friend, seemed less apt to “corrupt the mind.” More whimsical was the claim that those upholding “no bank at all but the clam bank” were exploiting a dearth of money to “make 15 or 20 percent, though it be by grinding the poor and trampling on all positive laws of morality.” Independent men who knew paper to be the “best medium,” not usurers and “screwing misers,” should be sent to the assembly. They were; and the new legislature voted yet another loan issue. By then some £300,000 currency was outstanding in New England, the very amount of specie one pamphleteer reckoned had been shipped away in the prior twenty years.12

    Gradual economic recovery and an additional public loan ended this round in a pamphlet war that wore on for a quarter century. At the moment efforts by the mother country to extend its power over the popular house eclipsed the money question. Matters changed only after Rhode Island’s venture into monetary imperialism divided the great-merchant class. A few years later a far greater threat, the creation of the first private land bank in Massachusetts, reunited the merchants.13

    Crown officials by the late 1720s aimed at returning currency values in the Bay Colony to those of lawful coin and restoring silver to circulation. The new governor, Jonathan Belcher, was directed to limit issues in support of government to £30,000 annually and to rid the province of loan office bills in just over a decade. But when he presented his instructions to the General Court early in 1729, the assembly came forward with a plan for a £50,000 loan with a proviso aimed at stabilizing silver at its highest price in 1721. Belcher sent the scheme to London—minus his signature—requesting permission to sign. The Board of Trade demurred, and an angry governor shot back that royal orders were useless anyway so long as Rhode Island flooded New England with cheap paper.14

    Rhode Island’s monetary practice broadly paralleled that of Massachusetts. The first treasury issues in 1710 covered wartime expenditures; public loans for growth and development followed. The loans had support until 1731, when depreciation drove Newport’s merchant elite, backed by the governor and the customs collector, to protest to London. Imperial authorities proved helpless. Rhode Island’s charter provided the governor with no veto, nor the crown with any power, over local laws. The province promptly enacted a £100,000 twenty-year loan.15

    Rhode Island’s banks had already caused outcries against that “handful of people who now supply” the Bay Colony “with many things,” including “the greatest part of the medium of exchange.” But word of the latest and largest loan arrived in the midst of depression and after news of the rejection of Massachusetts’s smaller loan designed to stabilize silver. With the government tied down by instructions restricting new currency issues and calling for the liquidation of all loan office bills by 1741, several of Boston’s merchant leaders decided to act. Led by James Bowdoin, Sr., Edward Bromfield, Jr., Thomas Cushing, Jr., William Foye, Edward Hutchinson, John Osborne, Samuel Sewall, Jr., Samuel Wells, Jacob Wendell, and Joshua Winslow, a number of the great merchants joined in a private venture, creating a kind of “Merchants Bank of Credit.” It offered on loan against good security £110,000 in “Merchants’ Notes” redeemable for silver at 19s. per ounce—just under the current price—in three installments between 1736 and 1743. The principal aim was to drive out Rhode Island paper and gradually replenish hard money stocks. The bank failed in its objectives, however, and Rhode Island bills remained in local use until 1750. Silver, meanwhile, rose 5s. by 1736 in response, said some, to recent treasury issues; said others, to the added weight of the merchants’ notes.16

    The Merchants Bank alienated several leading importers and Governor Belcher. As colonial creditors but sterling debtors, men like Thomas Hutchinson, Sr., for instance, never doubted the wisdom of hard money policies and strict legal limits on paper money. The governor began working with these people, considering a range of solutions from banning the merchants’ notes and other New England currencies to issuing short-lived provincial bills, sinking them as scheduled, and even redeeming them in specie at, or near, the proclamation rate of 6s. 8d. Little was done, however, until the price of silver dipped in 1736–37, allowing Belcher to connive at supporting a banking plan of the Hutchinsons, father and son, for emitting £60,000 currency convertible in ten years in silver at the 6s. 8d. rate. But when the assembly balked at including a suspending clause, the governor would not sign.

    The Board of Trade, meanwhile, had tightened monetary controls: new bank measures were to provide for redeeming bills in coin at proclamation rates and to exempt private debts owing in hard money from payment in paper. Notes issued in anticipation of taxes fell under like restrictions. They were not to exceed £30,000 annually, while currency struck before 1727 was to be sunk by 1741.17

    Rhode Island’s monetary imperialism, the Merchants Bank’s failure, tougher British policies, and a “dread” of “drawing in all the paper money without a substitution” led the assembly in mid-1739 to call for ideas for “furnishing” a medium of trade. John Colman promptly offered a private “Land Bank” scheme; eighteen months later five-sixths of the towns boasted land bankers. Critics at the time damned the bankers as “insolvents,” freeholders “much in debt,” and “plebeians” of “small estates.” But scholars have uncovered others: rising Boston merchants; artisans; tradesmen; farmers with “sizeable landholdings”; major businessmen; community leaders; professionals such as “doctors, lawyers, and clergymen”; prominent politicians; land speculators; and new landholders in the interior—in short, many of the same interests that had backed public banks and the populist coalition. Like these earlier banks, this bank promised to capitalize land, stop a ruinous contraction, and provide cheap loans for growth and development.18

    Opposed to the Land Bank stood the “Silver Bank.” Put before the government by Hutchinson, Jr., as a public scheme but rejected, the Silver Bank had come under the control of hard money men and directors of the old Merchants Bank who united in a grand coalition of great merchants to defeat the land bankers. But destruction of the Land Bank came about only after the merchants turned to their London creditors for help in pressuring the government at home to intervene. In 1741 an obliging Parliament extended the “South Sea Bubble Act” to America, eliminating all private banks of issue and requiring the land and silver banks to pay their debts in full.19

    In London, where Parliament was becoming embroiled in King George’s War, the money question was sidetracked for the rest of the decade. In Massachusetts, however, it became the very center of things as the General Court undertook the “resumption” of silver. Resumption is another well-worn tale. By the end of the war, Governor William Shirley, Belcher’s replacement, had come to favor fundamental monetary reform. Hutchinson as always had a plan. He proposed abolishing currency by exchanging bills for coin from the promised parliamentary reimbursement covering the Cape Breton campaign and other wartime expenditures. Silver was to be made lawful at the proclamation rate, and remaining paper taxed away; a later act banned other currencies from circulation. Shirley gave his blessing, and after much politicking Hutchinson got “as good” a law “as could be expected.” Despite misgivings about redeeming bills at speculative values, the Board of Trade agreed to the need to “suppress an evil.”20

    Shirley’s next move was to press for parliamentary regulation putting an end to all New England paper money. The crown paid no heed until leading Newport merchants petitioned in 1751 against the threat of another Rhode Island land bank. Their memorial harped upon currency’s crippling effect on America’s commercial-creditor class, and the Board of Trade quickly turned to Parliament. The outcome was the Currency Act of 1751.21

    Resumption and the Currency Act of 1751 did not settle the money question. Yet Hutchinson appears to have thought otherwise, going on about those who had foolishly condemned sinking the currency as a “shock to trade” and about a “good currency” having been “in sensibly substituted” in place of a “bad one, and every branch of business . . . carried on to greater advantage than before.” In fact, the funding operation dragged on for years, coinciding with a severe commercial setback after King George’s War and the hoarding of specie. Early in 1750 Thomas Hancock blamed the “d——d” resumption for turning “all trade out of doors, making it impossible to get debts in either dollars or province bills.” Indeed, three years later the legislature acted to inflate the value of what little paper remained in circulation.22

    In the end the postwar trade crisis, a monetary muddle, and the coming of a new war with France caused Massachusetts to turn to a funded debt, a system highly favorable to great-merchant, or monied, interests. Thus in 1750–54 the province undertook to pay its creditors in treasury, or promissory, notes carrying 6 percent interest and redeemable in two or three years in silver at the current legal rate for Spanish dollars. Its reason: with paper “all exchanged by the silver imported from England, and provision made by law that no bills of credit should ever after pass” as legal tender, “there was difficulty in providing money for the immediate service of government, until it could be raised by a tax.”

    Initial amounts were negligible. The French and Indian War changed that, calling forth £500,000 in certificates of indebtedness, or bonds. In the peak year 1761 the value, in silver, of outstanding treasury notes was virtually double that of the paper money in circulation at the time resumption began. If not fiat money, the new paper instruments were negotiable, receivable at the treasury, and at some point convertible in silver. Moreover, as merchant John Rowe noted, “treasury notes will do as well as money”; the notes in fact came to be called “merchants’ money.”23

    The great-merchant class looked favorably upon another fiscal innovation connected with the treasury notes. Starting in 1756, the Massachusetts government sold 6 percent “war bonds,” or treasury notes of large denomination, to merchants for specie and certificates of earlier issue. It then turned around and paid hard money for provisions often bought with paper instruments. The treasury notes, of course, were also payable in specie, as was yearly interest, so that from time to time merchants supported delaying the redemption of their bonds.24

    These policies ushered in the era of public credit, bringing the Bay Colony closer than it had ever been to the British system of funding the debt. And they set the pattern for the merchants’ approach to the money question during both the War for Independence and Shays’s Rebellion.25

    The second provincial congress of Massachusetts slammed the door on the era of public credit in May 1775 and returned to currency finance. Early that month the congress voted a £26,000 issue of the kind the Bay Colony had relied upon, and fought over, in the half century before resumption. The bills were redeemable in a year at 6 percent, or without interest if paid sooner. Another £4,000 followed; and after the transfer of power to the General Court in July, the embattled province authorized more and more paper, in all some £200,000 by year’s end. This new money was interest-free and was to be taxed away in the distant years 1778 to 1783. All the money, along with the bills of the other rebellious colonies, was made legal tender.26

    Depreciation began late in 1775, and in February 1776 the General Court ordered the arrest of anyone even suspected of undermining the currency. But when the agrarian-controlled House of Representatives went further and called for price controls, the Council, where the merchant interest prevailed, took exception. The issue would not go away. That March petitions from farm communities in Bristol, Suffolk, and Essex counties and the coastal towns Newbury and Newburyport condemned the “extravagant” prices of English goods and domestic commodities. The government, however, did no more than impose a £20 fine on sales made for less money in gold and silver; double that for passing bills at less than face value. Other legislation, meanwhile, aggravated inflation by making Continental dollars, which flooded into the state in support of the war, lawful for all payments, including specie debts.27

    Events moved swiftly. The British evacuated Boston in March 1776, and in April the Continental Congress opened American ports to the world. Economic opportunity was fast returning to commercial areas, leading some observers to remark upon the “rampant” new spirit of commerce; others, upon the danger of “public virtue” being “swallowed up in a desire of possessing paper currency.” The coming of summer brought more practical matters to light, from a doubling of costs the past year to the sharp dealings of merchants and farmers alike. By fall newspapers carried one complaint after another against monopolizers and forestallers, who held goods back from market until prices rose. Nothing was done, however, as the legislature set to work arranging a quid pro quo between rival interests.28

    State elections during the spring of 1776, in the words of one scholar, “reversed the short-lived social revolution that had swung control of government” in the previous two years to “agrarian reformers.” The merchants, who by mid-1775 already dominated the Council, led a major faction within the House as well. A deal between interests was not impossible. Agrarians opposed heavy, regressive poll and land taxes; they favored currency finance and price controls. Commercial interests opposed fiat money and price-fixing; they supported taxing as heavily as possible to limit depreciation and boost public credit. They also sought a return of the era of public credit, of the treasury note system of the 1750s and 1760s and the use of paper instruments that, while bearing interest and intended for investment, remained negotiable. The General Court struck a balance: it voted £300,000 in lawful bills redeemable as late as 1784 and £250,000 in treasury notes, in one to three years. Action on prices, taxes, and market control was deferred until late in the year.29

    By the fall of 1776 consideration of shortages of food, goods, and labor seemed imperative. Reports of “unrighteous” commerce, inflation, depreciation, and a threat of “tumults, disorders, and even a disunion and backwardness in, or defection from, the common cause of America” poured in on the assembly. In November the House designated three great merchants—Thomas Cushing of Boston, Azor Orne of Marblehead, and Tristan Dalton of Newburyport—to meet with delegates from Connecticut, New Hampshire, and Rhode Island in Providence, late in December. At issue were the support of currency values and prevention of “monopoly and high prices of goods and necessaries of life, regulation of vendues, embargo on shipping and such other matters as are of general concern to the New England States.” The merchant-dominated conference called for ending currency finance in favor of government borrowing and taxation.30

    The matter of price-fixing produced a double standard. Farmers got a freeze on the price of cheap stockings, work shoes, flannels, and so on. But for domestic and West Indian produce, ceiling prices were set at or near existing levels—an obvious advantage to seaports and inland commercial centers. European imports could be marked up as much as 275 percent sterling above price cost when sold wholesale. Any markup based upon sterling as opposed to currency values allowed merchants to adjust for inflation and still make a “fair” 275 percent profit. Double standard or no, the conference proceedings were “received, believed and submitted to like the doctrines of holy writ”: the General Court stopped issuing bills of credit, enacted a wartime tax, and passed the “First Regulating Act.” Designed to “prevent monopoly and oppression,” the Regulating Act gave the force of law to the Providence resolves concerning price-fixing.31

    By early spring when the mysteries of the Regulating Act were revealed, popular leader James Warren was in despair. The legislation was “constantly violated” in Boston, and in broad daylight. In the meantime “bitterness and wrath,” in Warren’s words, were tearing apart “town and country,” the country “endeavoring to starve the town in return for what they consider ill usage from them.” The farmers had succeeded, Boston’s situation being “little superior to what it was in the siege.” “Impracticable” was Warren’s final judgment on a law that “would end in bringing the authority of government into contempt.”32

    Warren was not far wrong. The Regulating Act split the “Merchantile Interest” into warring factions. “Joyce Junior,” for instance, symbolic executioner of Charles I and leader in the Boston protests by mechanics and day laborers against the tea consignees in 1774, was busy again in the streets and the press during March and April, railing against and escorting from town “Tory” traders and shopkeepers. Their crimes: refusing paper money, offering goods “lower for silver than for paper,” and buying up articles “at a dear rate” and then not parting with them for paper. In the west, meanwhile, spring elections had helped swing support in the new House in favor of agrarian interests, which amended the Regulating Act to death, coming up with a radically different measure—the so-called Second Regulating Act. Equally important, the assembly restricted legal tender privileges to Massachusetts and Continental currency.

    The Second Regulating Act revised upward the commodity price ceiling and charged selectmen and committees of correspondence with readjusting prices for such things as flour, smithwork, and labor every few months. Selling practices were also tightened up: trading in any manner that has not been “commonly practiced between buyer and seller” in the last several years could bring prosecution; goods sold in violation of the act were open to confiscation and sale in small quantities to retailers and the “needy.” The merchants acted to quash the law before it could be enforced and then moved against the state’s currency.33

    Late in May 1777 Boston’s town meeting, under merchant direction, went to the core of commercial and money problems. “Trade must always regulate itself,” the town instructed its representatives: a “coy mistress,” it could only be “ruined by force.” The Regulating Acts, with their “innumerable evils directly opposed to the idea of liberty,” were to be dropped in favor of free and open commerce and presumably fairer prices. Likewise fiat money was to be eliminated—exchanged for interest-bearing treasury certificates in order to prop up the Continental dollar, the only remaining lawful currency. That returning to the era of public credit and creation of a bonded debt would reward the great-merchant and monied class received no mention. But westerners and the landed interest controlled the House, which on June 1, after much debate, rejected repeal of the Regulating Acts by a thumping 122 to 31. The currency question never arose. As one observer said of the “great dissensions,” while the merchants were “warm against” the regulating laws, the House was “determined” to support them.34

    Seeming “not to know how to go forward or backward,” the assembly decided to sidestep matters. A few days after the vote against repeal, the House appointed a committee, which included several Council members, to review the Regulating Acts. It successfully recommended submitting the problem to a conference of delegates from New York, Connecticut, Massachusetts, New Hampshire, and Rhode Island set for late July in Springfield, Massachusetts. Local representatives, merchants Thomas Cushing from the Council and Azor Orne from the House, had attended the earlier Providence conference. The third member, also from the House, was conservative lawyer Robert Treat Paine.35

    As at Providence, the proposals arriving in Springfield proved easily acceptable to the merchant class. Most important were the repeal of price controls—that is, the Regulating Acts—and the sinking of the state currencies by conversion into treasury bonds and by taxes. By the time the Massachusetts legislature met again in late summer, many western representatives, doubtless busy with the harvest, stayed away. The Springfield resolutions became the law of the land, and on September 26 the assembly renounced in principle currency finance. A fortnight later it voted to repeal the Regulating Acts and to sink all bills of public credit in exchange for treasury notes bearing 6 percent interest. There was also another tax and compensation payment for families of Continental soldiers. Mobs in the meantime still protested commercial hoarding and high prices.

    In sum, the Revolutionary War had pressed the older policies of currency finance to their limits, provoking the leading merchants into a desperate fight to reinstate the era of public credit and the system of war finance favored by their class during the French and Indian War. That system was now on the books. The government had legislated the conversion of bills of credit of a dollar or more into a £400,000 treasury note issue. Available in denominations of not less than £10, the notes were funded, or secured, by taxes payable in the spring of 1780 and 1781. They would be redeemed when the time came in the lawful money of the day. As for any bills of credit still in circulation after November 1777, they would be void.36

    By late 1777 the merchants had succeeded in their scheme for war loans. The full implications of their victory only became known after the war—after specie was lawful money and heavy taxation was in full force. The financial system, however, still had to be defended against sharp-eyed criticism by the few who saw into the future and then had to be restored when the Continental dollar’s collapse forced a momentary return to currency finance.

    Amidst noisy assertions in 1777 of a need for price controls, the merchants had preached the wisdom of bringing inflation to heel by sinking the currency and of depending upon borrowing and taxation as the twin pillars of sound fiscal policy. Yet in Massachusetts as everywhere in America “square dollars” remained the “sinews of war.” With Congress issuing millions every month, inflation was bound to go on. But the conversion and taxation of state currency late in the year sent prices tumbling for the moment. Forty towns, nearly all agrarian, protested. Most significant was their reaction to funding the state debt—and to the possibility that “what little of our estates will be left at the end of the war must go to pay the principal and interest” on the debt to monopolists, monied men, extortionists, and Court merchants. Some towns said simply that instead of impoverishing common people, the government should have taxed the money away at depreciated rates or punished speculators by calling in the bills without redeeming them.37

    The legislature made two trifling concessions. First, it extended to April 1, 1778, the date for turning in bills of credit, giving westerners more time for the costly trek to the treasury office in Boston. Second, it empowered towns to take advantage of the funding scheme by granting a right to levy additional taxes payable in bills, exchange bills for treasury notes, and apply the notes—which would arguably rise in value—against future taxes. The assembly also appointed a committee, headed by Robert Treat Paine, to explain funding.38

    On New Year’s Day, 1778, newspapers carried an address to the “Inhabitants of the State of Massachusetts Bay.” The “alarming” situation of the currency and commerce, readers learned, had led the government to send delegates to the Providence and Springfield conventions, which had produced several proposals. These were duly rehearsed, along with would-be reasons for the funding law: the counterfeiting of the state currency; the advantage of the Continental dollar as the only lawful paper money; the impossibility of taxing away local bills of credit when the need to supply Congress imposed its own tax burdens; and the expectation and benefits for all ranks of lower prices. Most revealing was the justification that the funding would bring to the “American interest” monied men and speculators, especially those of “newly acquired property.” A rhetorical question summed up the case: “Hath it not been the universal sentiment since the war broke out, that this generation must fight, and the next pay what we are not able to? How can that be done without loaning the debt?”39

    “Loaning the debt” meant that the government issued its creditors promissory notes, that is, exacted loans. From 1775 through 1777 the legislature had, in fact, at times borrowed money from individuals on a voluntary basis. But in February 1778 it reverted to forced loans to pay drafts of the Board of War, an agency created in 1776 to provision the state’s armed forces and meet Continental obligations. Within four months the treasury had redeemed £120,000 in notes then maturing by converting them and extending the term of the original loan. Controversy over funding dropped from sight at this point as attacks on “fraudulent” money picked up, triggered by renewed complaints about higher prices and the Continental dollar’s depreciation. Port towns, meanwhile, suffered from an interruption of trade and privateering; in the west the combined pressure of taxes and debts kept courts closed.40

    Recrimination over paper money and prices had returned. Commercial farmers, “forestallers,” and middlemen living in a twenty-mile radius of Boston and other ports were condemned for selling “extravagantly dear” produce to townsfolk or to buyers for American and French forces. In June, House members spoke openly of bringing back price controls, a proposal apparently killed by timely advice from Congress against any talk of capping commodity prices as ineffectual and productive of “evil consequences” for the public service and oppressive to individuals.41

    Commerce improved toward the end of 1778, but commodity prices remained high and foodstuffs scarce. More important, depreciation of the Continental dollar had resumed, forcing Congress to spend more time on currency reform and new ways of financing the war. Massachusetts’s fiscal policies were as successful as any in arresting the dollar’s slide, yet at year’s end a silver dollar cost twice as much in Continental currency as it had at the start. Before long, it was being said, a “cart-load” of paper would hardly buy a “bushel of turnips.”42

    Congress voided $41 million in January 1779, ostensibly because of counterfeiting, offering to exchange the money for other bills or for interest-bearing loan certificates. At the same time the “amazing depreciation” led Congress to implore the states to begin sinking quantities of Continental dollars. In Massachusetts the General Court, “without much debate,” voted a £2.8 million levy as part of the $6 million Congress had asked the state to redeem by January 1780. Nothing helped. When Congress renewed its plea in June, the dollar’s value had been halved again. A few voices pressed for a return to specie, especially when hard money came into limited circulation after the arrival of the French fleet and soldiery. Some tradesmen even refused to take paper in common payment, but the dollar had its supporters who branded coin a “Tory” device that destroyed free elections and promoted bribery and corruption. No less urgent an issue was rising prices.43

    Defenders of Continental currency and price control had taken to Boston’s streets by mid-June. Handbills appeared threatening destruction upon the property and persons of monopolizers and extortioners—unless they left town—for refusing dollars and thus turning them into “waste paper.” They announced that “reliable” merchants and others concerned with trade had recently agreed to reduce merchandise prices, beginning July 15, to May 1 levels, pending similar action by other towns. At issue were the shortage and high cost of bread and other provisions and the government’s failure to do little more than enact yet another law against monopoly and forestalling. A continent wide movement in favor of money and trade controls had spread to Boston.44

    The merchants moved quickly to protect their interests. On June 17, the day following the handbills’ appearance, a meeting of Boston’s inhabitants took place at Faneuil Hall. After “sharp discussion,” delegates left for the Court House across the square to confer with the merchants, who were also looking into inflation. This joint conference agreed to set prices on West Indian foodstuffs and a few other imports, to support the law against monopoly and forestalling, and to use Continental currency in all ordinary transactions. At the end a call went out for towns to gather at Concord on July 14 to consider the “present distressed situation of the people” and the advanced price of all articles of consumption. Delegates from 140 towns came and elected Azor Orne presiding officer.45

    No easy consensus was achieved at Concord. Nearly half of the towns did agree to relatively high price ceilings for a range of Caribbean and country produce and to a need for local meetings to fix wages and prices for tanning, teaming work, domestic manufacturing, and so on, all “in proportion” to the established “rates of the necessaries of life.” The towns also had power over European imports. On this issue of importance to the great-merchant class, the Boston Town Meeting met early in November—only to accept as “impracticable” efforts to “affix particular prices to the various articles of European merchandise, or to do anything more than the late convention in Concord had done.”

    In sum, the new price-fixing arrangements, unlike the old Regulating Acts of 1776–77, were not enacted into law or unanimously supported. Having set the controls “at so high a rate” that they seemed ineffectual, the conference felt a need to explain itself. As Warren slyly commented to John Adams, the Concord convention doubtless did no more than expected; he sent Adams a copy of the proceedings to judge for himself as to whether measures came from fear, fortitude, self-interest, or patriotism.

    As for the problem of paper money and price regulation, the twin “causes of our distress,” the Concord delegates cited the continuing depreciation of Continental paper and the sharp practices of “jobbers, harpies, and forestallers” at the expense of a “fair merchant” and “honest farmer.” The setting of price ceilings aimed at stabilizing the currency and defeating inflation by slow and easy adjustments. And if anyone asked, the delegates huffed, “why we have fixed the articles of consumption and commerce at so high a rate, we answer, that a sudden appreciation of money is not only more difficult, but would in its operation be productive of those insupportable evils which have attended its contrary course.” This melancholy analysis—and forecast of events surrounding the Shaysite insurrection when agrarian and debtor interests were being milked by the merchants and public creditors in large part through just such a contraction of the currency—seemed a perfectly reasonable defense of monetary policies in 1779. Later it would be scorned or ignored.

    Since the conventional wisdom that summer of 1779 held the excessive quantity of money and the consequent “want of confidence” in Continental dollars to be the root cause of inflation, the agreed-upon remedy was to draw the currency out of circulation. The Concord delegates urged citizens to pay taxes quickly and subscribe liberally to a recent treasury note, or bond, issue aimed at sinking £200,000 by means of public borrowing. In short, price regulation was a stopgap; and the convention’s “Address” to the people offered a ringing endorsement of the new financial system based upon public loans and taxation, features dear to the merchants’ interest.46

    Massachusetts held more price-fixing conventions during 1779, while regional conferences took place a year later in Hartford, Connecticut, and soon after, with Congress’s support, in Philadelphia. Little came of them. Commodity shortages, high prices, and depreciation continued, unaffected by price controls, until good harvests took care of the first problem and the final gasp of the Continental currency the last. By then the struggle over the money question had led to the entrenchment and consolidation of the system of war finance established in 1777.47

    Unable to halt the dollar’s collapse or to take heart from the current round of conferences over prices and money, Congress pledged early in September 1779 to limit the paper flow to $200 million. The presses shut down within weeks. The next move was to squash the rumor that “as the Congress made the money, they can also destroy it; and that it will exist no longer than they find it convenient to permit it.” Such an “execrable deed” seemed unthinkable—until six months later Congress repudiated $195 million by revaluing the dollar at forty to one of specie. States were called upon to tax away the “old” notes within a year and to exchange them for “new tenor notes” at a rate of forty old to every two of the new. Thus did Congress salvage $10 million from its losses. Printed in Philadelphia, the new tenor bore the imprint of a state on one side, the central government on the other. This reflected a desire to share the money on a forty-sixty basis, benefiting both the states and Congress while providing an incentive for redeeming the old currency.

    Massachusetts authorized an issue not to exceed £460,000, its share of the new notes. More to the point and consistent with the larger policy of eliminating currency finance, the government also enacted the necessary taxes to sink the old paper dollars plus an annual levy over seven years of £72,000 in hard money to provide new tenor bills with a “gilt-edged” redemption fund. Lawful for all except specie debts, the new currency paid 5 percent interest and was convertible in Spanish milled dollars on December 31, 1786.48

    Congress’s revaluation scheme stabilized the dollar at around sixty to one, where it remained throughout the spring and summer of 1780. But faith in “square” dollars, like the money itself, soon resumed a downward course, taking with it the latest Continental issue. Critics were quick to point out that government both in the states and Philadelphia had already tried, to no avail, issuing bills bearing upon their face “a solemn promise” of redemption in silver and gold. Paying an annual interest in hard money would not help; as long as the new tenor notes were lawful for private debts, anyone receiving them would pass them along. More disquieting was knowing that with old and new bills in circulation, they would “mutually” reduce each other’s value.

    Newspapers carried numerous ingenious suggestions aimed at saving a currency system on the brink of collapse. None was simpler than the proposal to “release” all Continental paper to find its own value by eliminating it as lawful for private debts. That such action would also eliminate the vestiges of currency finance, restore the state to a specie standard, and strengthen creditor interests and the fiscal policy of government borrowing and heavy taxation adopted in 1777 went without saying. In a move toward this goal, the assembly in September 1780 repealed early wartime measures making Continental dollars a legal tender and created a scale of depreciation for determining the lawful specie value of all debts contracted during the fiat money years after 1777. Receivable now only for the taxes levied to remove them from circulation, the dollar slipped past seventy-five to one of hard money in a headlong fall until virtually passing out of existence a year or so later.49

    Anti–paper money voices lashed out, too, against the tender provisions of new tenor notes, which had begun their own ruinous depreciation, as “pernicious” to public credit and “unjust” to widows, orphans, clergymen, and all honest, industrious people. After a bitter contest in January 1781, the reunited “Merchantile Interest” drove through a measure empowering the “impartial” state supreme court judges to fix from time to time currency’s real worth. Opposition sprang up everywhere: in government, the press, and popular conventions. But by late spring the old emission had failed, and new tenor was going “fast downhill.” The notes were soon refused, and in July the assembly canceled their use as legal tender in private payments and set their value at seventy-five to one for taxes. Paper dollars, meanwhile, no longer passed at the treasury. Fiat money was gone; coin was back—coin from war prize sales, resident French troops, and “foreign parts.”50

    The General Assembly in the interim moved to entrench and extend its system of war finance established in 1777 at the time of the conversion of the state currency. This “Consolidation and Refunding” of the debt in 1781–83 has received careful study by historians and is correctly viewed as a major cause of Shays’s Rebellion.

    At the very moment in January 1781 that the “Merchantile Interest” was making its penultimate move against fiat money, the government enacted legislation liquidating all state securities—that is, treasury notes—according to an official scale of depreciation. This form of debt, then, was to be recalculated on the basis of the securities’ would-be specie value at the time of their issue, not at current, depreciated rates of around forty to one. In May and October additional measures, implementing and amplifying the original law, provided for exchanging the old notes and all other certificates of public debt for new “Consolidated Notes” in an amount not to exceed £800,000. A supplemental act in March 1783 authorized another £300,000 to complete the refunding, which dragged on until mid-1785. The notes were redeemable in specie in four installments between 1784 and 1788.51

    Such in brief is the story of consolidation and refunding. The government seemed willing enough to risk bringing rebellion down upon itself by dealing with treasury securities like any other part of the state debt. Treasury notes bore interest and came in large denominations; and they represented money lent to the state, forcibly or voluntarily. They were negotiable instruments intended for investment, not legal tender, however they were used. Yet as some historians have pointed out, the notes, if not precisely modern money, still formed a part of the total currency supply. And as this chapter has shown, treasury certificates had a place in the financial system ever since the “era of public credit” in the 1750s and 1760s.

    Treasury notes, in other words, did circulate during the Revolution as money and did depreciate in the hands of users and holders who bore the cost. The monied men, on the other hand—the wealthy merchants or speculators acquiring the securities on the eve of redemption and hoarding them before cashing them in—stood to gain a great deal from refunding.52

    Students of shays’s rebellion, beginning with George Richard Minot, have tended to view that event in terms of short-run factors and in a particular economic context: the “hard years” after the Revolutionary War. Only during this century have historians, starting with the Progressives, considered viewing the hard times of the 1780s and the insurrections that followed in a broader class context and in long perspective. And only in the last score of years have scholars, writing largely out of a New Left tradition, explored any aspect of that larger viewpoint and attempted to integrate short-and long-term “causes” of Shays’s Rebellion.53

    The present “neo-Progressive” interpretation focuses on the great-merchant class and its century-long involvement in the money question. From the 1690s on the leading merchants pursued financial and monetary policies that reflected a careful regard for their own interest, a belief in the intrinsic superiority of specie over paper currency, and an ideological approach to virtue, the public good, and social justice shaped more and more by the principles of the marketplace. Motivated in these ways, the merchants were instrumental in abolishing currency finance and banks of issue by the mid-eighteenth century and in substituting a specie currency and a system of funded debt akin to the English funding system established some sixty years earlier.

    But the War for Independence caused Massachusetts to restore currency finance. Again the great-merchant class was engaged in a fight over the money question. And again the merchants were instrumental in bringing about a return to hard money, public loans, and heavy taxes—thus setting the stage for the Massachusetts insurrections in 1786.