Well, in these dark days of monetary and fiscal incompetence, a bright and almost forgotten
light from our colonial past, William Douglas of Boston, who was born in 1691 and died in
1752, I think is an example to all of us of the perennial importance of sound money and
finance. His thoughtful work entitled, and you can see it there and I'll leave that up
for the remaining part of my time is this wonderful 18th century title, a discourse
concerning currencies of the British plantations in America, especially with regard to their
paper money, more particularly in relation to the provinces of the Massachusetts Bay
and New England, published in 1740, was a broadside squarely aimed at the ever-growing
and popularity of paper money and cheap credit, a phenomenon not unlike our own day.
My remarks before you today will attempt to elaborate and expand upon Murray and Rothbard's
sketch of William Douglas in his four-volume masterpiece of early American historiography
conceived in liberty. I would like to make you all aware that in the graduate program
in economics at the University of Detroit Mercy, Rothbard's two masterpieces, his two
William Douglas was born in Gifford, Scotland in 1691. He received a thorough medical education
studying at institutions in Edinburgh, Leiden and Paris after practicing medicine for a
for a short time in Bristol, England. He sailed the Atlantic and settled in Boston in 1718.
It was here in Boston that he was able to secure his medical reputation. Literally,
he had a tremendous knowledge of medicine, studying at three major medical universities
in Europe. In fact, a lot of people were afraid of him because of his knowledge at the time.
He not only supplied the Boston area with his medical skill and learning, but he also was a linguist, mastering five languages, a botanist, making a collection of more than 1,100 indigenous and American plants, a meteorologist and astronomer conducting observations, calculating ellipses, and other heavenly calculations, a publisher
of an Almanac in 1743, a cartographer. He tried to accurately map New England, although
he left his work unfinished in 1752 at his death. And historian, he wrote a work called
The Summary, Historical and Political, of the first planting, progressive improvements
and present state of the British settlements in North America, also one of the volumes
among the Library of Adam Smith, and also, and of course more importantly for our purposes,
The monetary discontents so passionately set forth in 1740 by Dr. Douglas in his discourse actually began in earnest in 1690.
The colonial currency of pounds, shillings and pence was the quote-unquote official money in circulation,
but it was supplemented by various items of barter, including wampum, as well as Spanish silver coins and Brazilian gold coin.
gold coin. These circulating media existed in quantities to ultimately satisfy the relatively
low level of economic development at the time, although many in colonial America perceived
that the demand for money was greater than its existing supply.
The fateful plunge of Massachusetts into paper money, Rothbard writes, came through direct
spending rather than lending. In trying to pay for a failed military expedition against
The County issued in December of 1690 the large sum of £7,000 in paper notes. In issuing
these notes, Massachusetts made the following two pledges to the holders of these new notes.
First, it promised to redeem the notes in specie out of what? Projected returns and
and Projected Revenues, and second, it pledged no further issuance.
Unfortunately, unfortunately, many of the notes remained outstanding and in use for nearly 40 years.
And in 1691, an issue of 40,000 pounds of new money was printed as a quote-unquote,
final attempt to repay the colonial debt. I think we're seeing a pattern here.
The paper note issuance almost immediately began to depreciate against specie.
In 1692 the colony of Massachusetts responded by making the issues compulsory legal tender for all debts.
And by granting a premium of 5% on all payment of debts to the government made in these paper notes.
Although the notes were designed to be redeemed through tax revenues, it really never worked out that way.
Not only was the colony supporting a devalued paper currency, but it had practically lost all its hard currency in the process. According to Rothbard, in 1690, before the orgy of paper began, 200,000 pounds of silver money were available in New England. By 1714, 240,000 pounds of paper money had been issued in New England, but the silver had disappeared from circulation, or practically disappeared from circulation. Massachusetts had increased the
Money and Circulation at the Expense of Displacing the Superior."
Gresham's law was no doubt in full force here.
In fact, the quote-unquote scarcity of money argument, which set the tone for the 1690-1691
printing, only exacerbated the situation.
By 1714, the colony was faced with a serious depreciation problem.
How do you counteract this situation?
A Colonial Land Bank was established to regain confidence, and its notes were issued and
made legal tender. It issued £100,000 in notes to be loaned in real estate in the various
counties of Massachusetts Bay. This new issuance added, at once, an increase of 40% to the
colony's money supply, and prices were raised so rapidly that objections to paper money
began to be voiced. Other colonies followed the folly, begun in Massachusetts, issuing
their own versions of legal tender loan bills. As the situation worsened, the price of silver
climbed to new levels and the paper depreciation began to severely affect many different groups
in the colonial economy. As Rothbard points out, hardest hit by the severe depreciation
of all the notes were non-debtors, especially creditors, fixed-income groups, charitable
In 1712, when silver in Massachusetts was priced at 8 shillings per ounce, wages of
laborers averaged 5 shillings a day. In 1730, with silver appreciated to 29 shillings an
ounce, wages were only 12 shillings a day. In short, as Rothbard continues, the price
A critical land policy change after 1720 precipitated a new attempt to establish a private land
bank in Massachusetts. Land speculators, who were now granted title to land that they didn't
settle on, were especially eager for an inflationary lending institution, a competing silver bank
Bank, which promised its note issuance also would be redeemable and specie after a number
of years, also petitioned the Colonial Assembly in Massachusetts Bay without success. Without
any real authority in those days to stop them, both banks issued notes anyway and the whole
affair became quite frankly a confusing mess. Rothbard writes again, the new land bank issued
over 49,000 pounds in notes, a hardly risky enterprise since the bank could issue pure
The silver bank refused to accept land bank notes, while the governor removed all government
officials who received or paid land bank notes, going to the extent of prohibiting lawyers
from receiving the notes when pleading cases before the council.
Not surprisingly, therefore, the land bank notes began to drastically depreciate.
Merchants refused to accept them in trade, and the English Crown, by an act of the English
The British Parliament outlawed both banks in 1741.
Throughout the colonies, the crown, propelled by English creditors, was continuing, writes Rothbard,
was a continuing force for sound money in its embattled governor's attempt at the veto paper issues
and to moderate the inflationary drive.
But the governors really were unable to reverse the direction of many who demanded an end to the scarcity of money
The beginning of easy credit. With the time that I have available, I want to dip into the discourse itself and give you sort of a flavor for the things that Douglas said.
Unquestionably, the leading hard money theoretician of the colonial era was Dr. William Douglas.
As chronicled earlier in this essay, the paper money controversy was already 50 years in making when Douglas penned his masterpiece.
Not only was the discourse a response to the irresponsibility of paper money advocates of
his day, but it was also an important statement to his opposition of the land bank scheme
as well.
He understood, Rothbard writes, the various fallacies of the scarcity of money outcry,
the workings of Gresham's law, the distress that paper wreaked on creditors, and the special
privilege it conferred on debtors, and the depreciation caused by paper money issues.
This is how Douglas begins his work, quote,
The many schemes at present, and I love this introduction,
just listen to this, the many schemes at present
upon the anvil in Boston for emitting enormous quantities
of paper currencies are the occasion for this discourse.
The writer does not vainly pretend to dictate to government
or prescribe the trade, but with a sincere regard
to the public good has taken some pains to collect, digest,
and set, in a proper light, several facts and political experiences, especially relating to paper currencies, which, though plain in themselves, are not obvious to every body."
Douglas then proceeds to establish the importance of specie, and in those days, of course, silver, as the fundamental and universal medium of trade.
If a country can be supposed to have no dealings but within itself, the legislature, or tacit
consent of the people, may appoint or receive any currency at pleasure. But a trading country
must have regard to the universal commercial medium, which is silver, or cheat, and trade
to a disadvantage." But what has happened since the first issuance
of Paper Money in Massachusetts in 1690. Douglas points to who? He points to, as he
describes it, the debtor party. So to quote again, the debtor party, I am ashamed to mention
it, he says, being the prevailing party in all our depreciating paper money colonies,
do wickedly endeavor to delude the unthinking multitude by persuading them that all endeavors
of the governor or proposals and schemes of private societies to introduce a silver medium
or a credit upon a silver bottom, to prevent the honest and industrious creditor from being
defrauded are impositions upon the liberty and property of the people."
Again all very powerful.
Douglas then appeals to recent history and provides examples for his readers of nations
that experiment with paper currencies only to ultimately see the error of their ways.
And it's a long quote, I'm not going to read it all, I don't have time for it, but he talks
The late Regent of France, by the advice of Mr. Law, did form a project in 1720, and by
his arbitrary power, endeavored to put it on execution, to defraud state creditors and
others by banishing of silver currency and of substituting a paper credit. The effect
was the greatest confusion, and almost utter subversion of their trade and business. The
remedy was, and then in parentheses, Mr. Law having sneaked off, becoming, you know, becoming
as he calls it, a profugus, for you Latin scholars out there, you know, sort of a, yeah,
yeah, exactly, and at last died obscurely, end of the parentheses. After a few months,
The Court of France were obliged to ordain that there should be no other legal tender
but silver coin, and commerce has flourished in France more than ever."
And most especially, Douglas reminds his reader that in Great Britain in 1716 there was currently
quote, four and a half million pounds of sterling in Exchequer notes being the largest quantity
current at one time.
Although they bore about half of legal interest and not equal to one third of the concomitant
National Silver Currency, they labored much in circulation and the government to prevent
their being depreciated was obliged to give considerable premiums to the bank for canceling
some of them and circulating the remainder. Not only have the American colonies chosen
and especially the Massachusetts Bay to devalue and depreciate their medium of exchange with
the issuance of paper notes, but all the foreign colonial governments as well were ineffective
and Promoting the Continuation of Species.
And he tells us that in his work.
Also, the unfortunate military expedition
into French Quebec feel the desire
to quickly and artificially pay off this debt
through the emission and remission
of what were then known as province bills.
Massachusetts Bay was the leader of paper currencies
in our colonies, declares Douglas.
And instead of providing for posterity,
They proceeded to involve them in debt. Then he went on to say that this quote, this long
public credit and the enormous public loans have depreciated our province bills to the
small value they bear at present. According to Douglas, these mischiefs or ill effects
of a large paper currency issuance or emission have especially affected, and then he writes,
the laborers and tradesmen who in all countries are the heads which feed the belly of the
with Commonwealth and therefore deserve our chief regard how much they have suffered and
continue to suffer as obvious." In addition, the merchants of Great Britain suffered enormously.
And he writes, quote, the merchants of Great Britain adventures to New England because
of their largest dealings have suffered most. Their goods are here generally sold at a long
credit while the denominations of the money in which they are to be paid continues depreciating
so that they are paid in less value than was contracted for."
This expansion of easy credit and subsequent depreciation of the circulating medium is
a certain sign of a country being generally in bad circumstances.
And he goes on and he goes on and he goes on.
Finally in the post script of the 1751 reprint edition of his work, Douglas pleads with his
readers to not abandon all hope of a return to a sound currency system.
This is what he writes.
Let us not despair. It is not impossible to give silver against its currency. Let us tread our footsteps back, and we shall naturally return to where we came from. That is, as the increasing quantity of paper money drove away silver, a gradual lessening of the same will make room for this better currency.
At a time, therefore, when assemblies and colonial governments were mesmerized by the allure of cheap credit to satisfy the wishes and desires of a growing debtor class, Douglas, not unlike the Austrians of our own day, helped fast to his belief in sound principles and policies of debt repayment using specie or a full-bodied commodity money. At a time when assemblies and colonial governments saw paper money and note issuance as a way around the alleged scarcity of money problem,
Douglas, not unlike the Austrians of our own day, rejected the notion as a way of artificially
expanding production and bona fide wealth. And at a time when assemblies and colonial
governments viewed inflation as a boon instead of an eventual bust, Douglas, not unlike the
Austrians of our own day, rejected it as a pernicious form of taxation exacted especially
upon his Massachusetts Bay compatriots. What was absolutely clear to William Douglas in
in the mid-part of the 18th century should be absolutely clear to us today. That is,
in the words of Mises, expansion produces first the illusory appearance of prosperity.
It is extremely popular because it seems to make the majority, even everybody, more affluent.
It has an enticing quality. A special moral effort is needed to stop it. On the other
hand, contraction immediately produces conditions which everybody is ready to condemn as evil.
Its unpopularity is even greater than the popularity of expansion. It creates violent
opposition. Very soon the political forces fighting it become irresistible."
Let us therefore heed the wise words of Dr. William Douglas and his plea to an earlier
generation that was under the illusion, like our present day leadership, that a sound money
system was not necessary. And let us as well heed the wise words of another medical doctor
The Founding Fathers had had plenty of experiences with paper money, and it turned the great majority of them firmly against it.
The Revolutionary War was financed in part by the government-issued continental currency, which was not backed by gold, which people were forced to use and which the government issued in greater and greater abundance until its value was completely destroyed.
Little wonder that most American statesmen oppose the issuance of paper currency and
money by the government and the constitution they drafted nowhere granted the Federal Government
such a power.
Thank you very much.