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Viewpoint: Debts, paper money and the Constitution

Two recent books are likely to interest numismatists, especially those who focus on paper money.

Two recent books are likely to interest numismatists, especially those who focus on paper money.

They are American Creation: Triumphs and tragedies at the founding of the Republic by J. Ellis and Unruly Americans and the origins of the Constitution by W. Holton.

Both books focus on the U.S. in the 1780s, roughly the period between the Revolutionary War and ratification of the Constitution, and the books agree that the new Republic was foundering partly for want of a strong central government and partly because of the manner in which paper money had been deployed in the states.

Under the prevailing Articles of Confederation the states had the right to emit money and to regulate its supply, creating a situation where popularly elected officials were likely to emit excessive quantities of paper money if that was what their constituents desired. This is precisely what happened in most states, although there was considerable variation, and the Federalists of the time recognized this danger as “an excess of democracy.”.

Far more people were debtors than were creditors, so the majority could deal with debt by voting for inflationary currency emissions, enabling them to repay with money worth far less than the money they initially borrowed. Good for the debtors, terrible for the creditors. Sometimes debtors would rise to startling additional levels, as when mobs forced closure of courts to prevent judgments being made against them.

Coming on the heels of the Continental Currency debacle, it is no wonder that the new Constitution and its associated literature emphasized protection of property, excoriated paper money, and insisted upon hard money as legal tender. It is also no wonder that numerous Americans, probably the majority, were opposed to the merchant-creditor friendly provisions of the Constitution. The great wonder is that the Founding Fathers were nevertheless able to make this document into the law of the land.

This accomplishment is the central focus of much of Ellis’ book, along with exploring the psychology of the founders. He does not spend a great deal of time on money issues, but because of the central importance of these matters, he treated them along the way frequently as pathways into the minds of the Adams, Hamilton, Jefferson, Washington, and others. We kept a list of all such references, not counting the very frequent use of the phrase “blood and treasure” or similar catch phrases. There are 17 passages in Ellis that deal with the horrors of paper money in the eyes of the founders or with closely related topics such as Mr. Hamilton’s Bank, debt reduction or the importance of a reliable monetary system for attracting foreign investors.

Holton, by contrast, is less concerned with the psychology of the founders and is far more concerned with the unruly behavior of the typical Americans of this period. He makes well over 100 references to paper money, tracing its evolution in North America (beginning with chits distributed to French and English soldiers when shipments of coins arrived late). But his major goal was to focus on emissions of paper money by the colonies and then the new states, revealing the hatred that creditors eventually developed toward this device of the majority.

Of course, the supply of paper money could have been regulated in various ways to minimize inflation, as was done with some success during the colonial era under British oversight. Dynamics changed after Independence when, in the hands of the debtor majority, paper money became a weapon of sorts for dealing with the wealthy. Class conflict had existed since the founding of Jamestown in 1607, but now the debtors had the tools of democracy.

to tip the scales in their favor. Trouble came quickly as the wealthy refused to make loans and as foreign creditors did the same. Other troubles developed as well, particularly with Hamilton’s plan to exchange Continentals for bonds and then later to redeem the bonds at par plus interest. Naturally, the Continentals and, hence, the bonds became concentrated in the hands of the wealthy, as these were the only people able to buy up the paper for hard money. Since the soldiers sold their pay at profound discounts, the payment of full value to the eventual bondholders was seen as favoritism of the wealthy. Abigail Adams and several others of the propertied elite were interesting case studies in this regard.

Tracing the evolution of monetary events from the Revolution to the Constitution creates a fascinating story. It was at the heart of the new Federalism and it became part of American ideology and a basis for America’s subsequent economic success. Holton is a must for numismatists, but the two books together tell a larger story that provides insight into genius of those who founded the Republic and then ensured its continuity. An important component of that genius was the ability of a small group of politically astute individuals to see the monetary dangers early, at a time when most people could not and at a time when decisive action in the form of the new Constitution could ward off disaster and save the Republic.


Ellis, J. 2007 American Creation: Triumphs and tragedies at the founding of the Republic. New York: Alfred A. Knopf. XI + 283 pp. ISBN: 978-0-307-26369-8

Holton, W. 2007. Unruly Americans and the origins of the Constitution. New York: Hill + Wang. IX + 384 pp. ISBN: 978-0-8090-8061-8.

David Chiszar is a professor of psychology at the University of Colorado in Boulder, Colo.

W. Douglas Costain is a political scientist at the University of Colorado.

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