WEBVTT NOTE William Douglass: Sound-Money Theorist of the American Colonial Period 1 00:00:00.000 --> 00:00:08.800 Well, in these dark days of monetary and fiscal incompetence, a bright and almost forgotten 2 00:00:08.800 --> 00:00:14.640 light from our colonial past, William Douglas of Boston, who was born in 1691 and died in 3 00:00:14.640 --> 00:00:20.200 1752, I think is an example to all of us of the perennial importance of sound money and 4 00:00:20.200 --> 00:00:24.560 finance. His thoughtful work entitled, and you can see it there and I'll leave that up 5 00:00:24.560 --> 00:00:30.480 for the remaining part of my time is this wonderful 18th century title, a discourse 6 00:00:30.480 --> 00:00:36.500 concerning currencies of the British plantations in America, especially with regard to their 7 00:00:36.500 --> 00:00:41.240 paper money, more particularly in relation to the provinces of the Massachusetts Bay 8 00:00:41.240 --> 00:00:47.520 and New England, published in 1740, was a broadside squarely aimed at the ever-growing 9 00:00:47.520 --> 00:00:55.140 and popularity of paper money and cheap credit, a phenomenon not unlike our own day. 10 00:00:55.140 --> 00:01:00.480 My remarks before you today will attempt to elaborate and expand upon Murray and Rothbard's 11 00:01:00.480 --> 00:01:06.160 sketch of William Douglas in his four-volume masterpiece of early American historiography 12 00:01:06.160 --> 00:01:12.340 conceived in liberty. I would like to make you all aware that in the graduate program 13 00:01:12.340 --> 00:01:17.080 in economics at the University of Detroit Mercy, Rothbard's two masterpieces, his two 14 00:01:17.080 --> 00:01:35.200 William Douglas was born in Gifford, Scotland in 1691. He received a thorough medical education 15 00:01:35.200 --> 00:01:41.760 studying at institutions in Edinburgh, Leiden and Paris after practicing medicine for a 16 00:01:41.760 --> 00:01:48.520 for a short time in Bristol, England. He sailed the Atlantic and settled in Boston in 1718. 17 00:01:48.520 --> 00:01:52.920 It was here in Boston that he was able to secure his medical reputation. Literally, 18 00:01:52.920 --> 00:01:59.320 he had a tremendous knowledge of medicine, studying at three major medical universities 19 00:01:59.320 --> 00:02:04.960 in Europe. In fact, a lot of people were afraid of him because of his knowledge at the time. 20 00:02:04.960 --> 00:02:34.960 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 21 00:02:34.960 --> 00:02:43.200 of an Almanac in 1743, a cartographer. He tried to accurately map New England, although 22 00:02:43.200 --> 00:02:48.680 he left his work unfinished in 1752 at his death. And historian, he wrote a work called 23 00:02:48.680 --> 00:02:53.780 The Summary, Historical and Political, of the first planting, progressive improvements 24 00:02:53.780 --> 00:02:58.520 and present state of the British settlements in North America, also one of the volumes 25 00:02:58.520 --> 00:03:04.520 among the Library of Adam Smith, and also, and of course more importantly for our purposes, 26 00:03:04.520 --> 00:03:14.520 The monetary discontents so passionately set forth in 1740 by Dr. Douglas in his discourse actually began in earnest in 1690. 27 00:03:14.520 --> 00:03:23.520 The colonial currency of pounds, shillings and pence was the quote-unquote official money in circulation, 28 00:03:23.520 --> 00:03:30.520 but it was supplemented by various items of barter, including wampum, as well as Spanish silver coins and Brazilian gold coin. 29 00:03:30.520 --> 00:03:35.960 gold coin. These circulating media existed in quantities to ultimately satisfy the relatively 30 00:03:35.960 --> 00:03:41.360 low level of economic development at the time, although many in colonial America perceived 31 00:03:41.360 --> 00:03:45.440 that the demand for money was greater than its existing supply. 32 00:03:45.440 --> 00:03:50.800 The fateful plunge of Massachusetts into paper money, Rothbard writes, came through direct 33 00:03:50.800 --> 00:03:56.000 spending rather than lending. In trying to pay for a failed military expedition against 34 00:03:56.000 --> 00:04:07.960 The County issued in December of 1690 the large sum of £7,000 in paper notes. In issuing 35 00:04:07.960 --> 00:04:13.560 these notes, Massachusetts made the following two pledges to the holders of these new notes. 36 00:04:13.560 --> 00:04:18.900 First, it promised to redeem the notes in specie out of what? Projected returns and 37 00:04:18.900 --> 00:04:23.900 and Projected Revenues, and second, it pledged no further issuance. 38 00:04:23.900 --> 00:04:31.900 Unfortunately, unfortunately, many of the notes remained outstanding and in use for nearly 40 years. 39 00:04:31.900 --> 00:04:37.900 And in 1691, an issue of 40,000 pounds of new money was printed as a quote-unquote, 40 00:04:37.900 --> 00:04:43.900 final attempt to repay the colonial debt. I think we're seeing a pattern here. 41 00:04:43.900 --> 00:04:47.900 The paper note issuance almost immediately began to depreciate against specie. 42 00:04:47.900 --> 00:04:55.900 In 1692 the colony of Massachusetts responded by making the issues compulsory legal tender for all debts. 43 00:04:55.900 --> 00:05:02.900 And by granting a premium of 5% on all payment of debts to the government made in these paper notes. 44 00:05:02.900 --> 00:05:08.900 Although the notes were designed to be redeemed through tax revenues, it really never worked out that way. 45 00:05:08.900 --> 00:05:38.900 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 46 00:05:38.900 --> 00:05:45.460 Money and Circulation at the Expense of Displacing the Superior." 47 00:05:45.460 --> 00:05:47.660 Gresham's law was no doubt in full force here. 48 00:05:47.660 --> 00:05:54.260 In fact, the quote-unquote scarcity of money argument, which set the tone for the 1690-1691 49 00:05:54.260 --> 00:05:56.980 printing, only exacerbated the situation. 50 00:05:56.980 --> 00:06:03.140 By 1714, the colony was faced with a serious depreciation problem. 51 00:06:03.140 --> 00:06:05.020 How do you counteract this situation? 52 00:06:05.020 --> 00:06:10.120 A Colonial Land Bank was established to regain confidence, and its notes were issued and 53 00:06:10.120 --> 00:06:17.200 made legal tender. It issued £100,000 in notes to be loaned in real estate in the various 54 00:06:17.200 --> 00:06:25.200 counties of Massachusetts Bay. This new issuance added, at once, an increase of 40% to the 55 00:06:25.200 --> 00:06:30.280 colony's money supply, and prices were raised so rapidly that objections to paper money 56 00:06:30.280 --> 00:06:35.960 began to be voiced. Other colonies followed the folly, begun in Massachusetts, issuing 57 00:06:35.960 --> 00:06:40.480 their own versions of legal tender loan bills. As the situation worsened, the price of silver 58 00:06:40.480 --> 00:06:47.480 climbed to new levels and the paper depreciation began to severely affect many different groups 59 00:06:47.780 --> 00:06:53.560 in the colonial economy. As Rothbard points out, hardest hit by the severe depreciation 60 00:06:53.560 --> 00:06:58.440 of all the notes were non-debtors, especially creditors, fixed-income groups, charitable 61 00:06:58.440 --> 00:07:11.100 In 1712, when silver in Massachusetts was priced at 8 shillings per ounce, wages of 62 00:07:11.100 --> 00:07:18.000 laborers averaged 5 shillings a day. In 1730, with silver appreciated to 29 shillings an 63 00:07:18.000 --> 00:07:23.580 ounce, wages were only 12 shillings a day. In short, as Rothbard continues, the price 64 00:07:23.580 --> 00:07:41.860 A critical land policy change after 1720 precipitated a new attempt to establish a private land 65 00:07:41.860 --> 00:07:46.980 bank in Massachusetts. Land speculators, who were now granted title to land that they didn't 66 00:07:46.980 --> 00:07:52.700 settle on, were especially eager for an inflationary lending institution, a competing silver bank 67 00:07:52.700 --> 00:07:57.180 Bank, which promised its note issuance also would be redeemable and specie after a number 68 00:07:57.180 --> 00:08:04.260 of years, also petitioned the Colonial Assembly in Massachusetts Bay without success. Without 69 00:08:04.260 --> 00:08:09.460 any real authority in those days to stop them, both banks issued notes anyway and the whole 70 00:08:09.460 --> 00:08:15.340 affair became quite frankly a confusing mess. Rothbard writes again, the new land bank issued 71 00:08:15.340 --> 00:08:21.440 over 49,000 pounds in notes, a hardly risky enterprise since the bank could issue pure 72 00:08:21.440 --> 00:08:28.800 The silver bank refused to accept land bank notes, while the governor removed all government 73 00:08:28.800 --> 00:08:34.000 officials who received or paid land bank notes, going to the extent of prohibiting lawyers 74 00:08:34.000 --> 00:08:38.080 from receiving the notes when pleading cases before the council. 75 00:08:38.080 --> 00:08:42.760 Not surprisingly, therefore, the land bank notes began to drastically depreciate. 76 00:08:42.760 --> 00:08:47.040 Merchants refused to accept them in trade, and the English Crown, by an act of the English 77 00:08:47.040 --> 00:08:52.040 The British Parliament outlawed both banks in 1741. 78 00:08:52.040 --> 00:08:59.040 Throughout the colonies, the crown, propelled by English creditors, was continuing, writes Rothbard, 79 00:08:59.040 --> 00:09:06.040 was a continuing force for sound money in its embattled governor's attempt at the veto paper issues 80 00:09:06.040 --> 00:09:09.040 and to moderate the inflationary drive. 81 00:09:09.040 --> 00:09:16.040 But the governors really were unable to reverse the direction of many who demanded an end to the scarcity of money 82 00:09:16.040 --> 00:09:27.040 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. 83 00:09:27.040 --> 00:09:33.040 Unquestionably, the leading hard money theoretician of the colonial era was Dr. William Douglas. 84 00:09:33.040 --> 00:09:44.040 As chronicled earlier in this essay, the paper money controversy was already 50 years in making when Douglas penned his masterpiece. 85 00:09:44.040 --> 00:09:48.880 Not only was the discourse a response to the irresponsibility of paper money advocates of 86 00:09:48.880 --> 00:09:54.160 his day, but it was also an important statement to his opposition of the land bank scheme 87 00:09:54.160 --> 00:09:55.160 as well. 88 00:09:55.160 --> 00:10:00.760 He understood, Rothbard writes, the various fallacies of the scarcity of money outcry, 89 00:10:00.760 --> 00:10:05.900 the workings of Gresham's law, the distress that paper wreaked on creditors, and the special 90 00:10:05.900 --> 00:10:12.040 privilege it conferred on debtors, and the depreciation caused by paper money issues. 91 00:10:12.040 --> 00:10:15.080 This is how Douglas begins his work, quote, 92 00:10:15.080 --> 00:10:18.440 The many schemes at present, and I love this introduction, 93 00:10:18.440 --> 00:10:20.600 just listen to this, the many schemes at present 94 00:10:20.600 --> 00:10:24.360 upon the anvil in Boston for emitting enormous quantities 95 00:10:24.360 --> 00:10:27.700 of paper currencies are the occasion for this discourse. 96 00:10:27.700 --> 00:10:31.280 The writer does not vainly pretend to dictate to government 97 00:10:31.280 --> 00:10:33.920 or prescribe the trade, but with a sincere regard 98 00:10:33.920 --> 00:10:38.920 to the public good has taken some pains to collect, digest, 99 00:10:38.920 --> 00:10:51.920 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." 100 00:10:51.920 --> 00:10:59.920 Douglas then proceeds to establish the importance of specie, and in those days, of course, silver, as the fundamental and universal medium of trade. 101 00:10:59.920 --> 00:11:08.000 If a country can be supposed to have no dealings but within itself, the legislature, or tacit 102 00:11:08.000 --> 00:11:13.400 consent of the people, may appoint or receive any currency at pleasure. But a trading country 103 00:11:13.400 --> 00:11:20.120 must have regard to the universal commercial medium, which is silver, or cheat, and trade 104 00:11:20.120 --> 00:11:24.480 to a disadvantage." But what has happened since the first issuance 105 00:11:24.480 --> 00:11:30.560 of Paper Money in Massachusetts in 1690. Douglas points to who? He points to, as he 106 00:11:30.560 --> 00:11:35.200 describes it, the debtor party. So to quote again, the debtor party, I am ashamed to mention 107 00:11:35.200 --> 00:11:41.440 it, he says, being the prevailing party in all our depreciating paper money colonies, 108 00:11:41.440 --> 00:11:47.240 do wickedly endeavor to delude the unthinking multitude by persuading them that all endeavors 109 00:11:47.240 --> 00:11:53.160 of the governor or proposals and schemes of private societies to introduce a silver medium 110 00:11:53.160 --> 00:11:58.120 or a credit upon a silver bottom, to prevent the honest and industrious creditor from being 111 00:11:58.120 --> 00:12:03.360 defrauded are impositions upon the liberty and property of the people." 112 00:12:03.360 --> 00:12:05.240 Again all very powerful. 113 00:12:05.240 --> 00:12:08.560 Douglas then appeals to recent history and provides examples for his readers of nations 114 00:12:08.560 --> 00:12:13.880 that experiment with paper currencies only to ultimately see the error of their ways. 115 00:12:13.880 --> 00:12:21.360 And it's a long quote, I'm not going to read it all, I don't have time for it, but he talks 116 00:12:21.360 --> 00:12:36.680 The late Regent of France, by the advice of Mr. Law, did form a project in 1720, and by 117 00:12:36.680 --> 00:12:42.740 his arbitrary power, endeavored to put it on execution, to defraud state creditors and 118 00:12:42.740 --> 00:12:47.880 others by banishing of silver currency and of substituting a paper credit. The effect 119 00:12:47.880 --> 00:12:53.160 was the greatest confusion, and almost utter subversion of their trade and business. The 120 00:12:53.160 --> 00:13:01.740 remedy was, and then in parentheses, Mr. Law having sneaked off, becoming, you know, becoming 121 00:13:01.740 --> 00:13:09.720 as he calls it, a profugus, for you Latin scholars out there, you know, sort of a, yeah, 122 00:13:09.720 --> 00:13:15.640 yeah, exactly, and at last died obscurely, end of the parentheses. After a few months, 123 00:13:15.640 --> 00:13:19.240 The Court of France were obliged to ordain that there should be no other legal tender 124 00:13:19.240 --> 00:13:23.680 but silver coin, and commerce has flourished in France more than ever." 125 00:13:23.680 --> 00:13:28.800 And most especially, Douglas reminds his reader that in Great Britain in 1716 there was currently 126 00:13:28.800 --> 00:13:34.320 quote, four and a half million pounds of sterling in Exchequer notes being the largest quantity 127 00:13:34.320 --> 00:13:36.220 current at one time. 128 00:13:36.220 --> 00:13:41.280 Although they bore about half of legal interest and not equal to one third of the concomitant 129 00:13:41.280 --> 00:13:45.920 National Silver Currency, they labored much in circulation and the government to prevent 130 00:13:45.920 --> 00:13:50.200 their being depreciated was obliged to give considerable premiums to the bank for canceling 131 00:13:50.200 --> 00:13:56.420 some of them and circulating the remainder. Not only have the American colonies chosen 132 00:13:56.420 --> 00:14:02.040 and especially the Massachusetts Bay to devalue and depreciate their medium of exchange with 133 00:14:02.040 --> 00:14:07.540 the issuance of paper notes, but all the foreign colonial governments as well were ineffective 134 00:14:07.540 --> 00:14:10.100 and Promoting the Continuation of Species. 135 00:14:10.100 --> 00:14:15.780 And he tells us that in his work. 136 00:14:15.780 --> 00:14:18.500 Also, the unfortunate military expedition 137 00:14:18.500 --> 00:14:20.180 into French Quebec feel the desire 138 00:14:20.180 --> 00:14:22.200 to quickly and artificially pay off this debt 139 00:14:22.200 --> 00:14:24.620 through the emission and remission 140 00:14:24.620 --> 00:14:27.760 of what were then known as province bills. 141 00:14:27.760 --> 00:14:31.500 Massachusetts Bay was the leader of paper currencies 142 00:14:31.500 --> 00:14:33.380 in our colonies, declares Douglas. 143 00:14:33.380 --> 00:14:35.320 And instead of providing for posterity, 144 00:14:35.320 --> 00:14:40.380 They proceeded to involve them in debt. Then he went on to say that this quote, this long 145 00:14:40.380 --> 00:14:44.760 public credit and the enormous public loans have depreciated our province bills to the 146 00:14:44.760 --> 00:14:50.460 small value they bear at present. According to Douglas, these mischiefs or ill effects 147 00:14:50.460 --> 00:14:56.600 of a large paper currency issuance or emission have especially affected, and then he writes, 148 00:14:56.600 --> 00:15:02.040 the laborers and tradesmen who in all countries are the heads which feed the belly of the 149 00:15:02.040 --> 00:15:07.040 with Commonwealth and therefore deserve our chief regard how much they have suffered and 150 00:15:07.040 --> 00:15:16.040 continue to suffer as obvious." In addition, the merchants of Great Britain suffered enormously. 151 00:15:16.040 --> 00:15:20.200 And he writes, quote, the merchants of Great Britain adventures to New England because 152 00:15:20.200 --> 00:15:24.960 of their largest dealings have suffered most. Their goods are here generally sold at a long 153 00:15:24.960 --> 00:15:31.280 credit while the denominations of the money in which they are to be paid continues depreciating 154 00:15:31.280 --> 00:15:35.420 so that they are paid in less value than was contracted for." 155 00:15:35.420 --> 00:15:41.280 This expansion of easy credit and subsequent depreciation of the circulating medium is 156 00:15:41.280 --> 00:15:46.120 a certain sign of a country being generally in bad circumstances. 157 00:15:46.120 --> 00:15:49.360 And he goes on and he goes on and he goes on. 158 00:15:49.360 --> 00:15:55.520 Finally in the post script of the 1751 reprint edition of his work, Douglas pleads with his 159 00:15:55.520 --> 00:15:59.500 readers to not abandon all hope of a return to a sound currency system. 160 00:15:59.500 --> 00:16:00.500 This is what he writes. 161 00:16:00.500 --> 00:16:20.500 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. 162 00:16:20.500 --> 00:16:50.500 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, 163 00:16:50.500 --> 00:16:55.780 Douglas, not unlike the Austrians of our own day, rejected the notion as a way of artificially 164 00:16:55.780 --> 00:17:01.080 expanding production and bona fide wealth. And at a time when assemblies and colonial 165 00:17:01.080 --> 00:17:07.000 governments viewed inflation as a boon instead of an eventual bust, Douglas, not unlike the 166 00:17:07.000 --> 00:17:12.400 Austrians of our own day, rejected it as a pernicious form of taxation exacted especially 167 00:17:12.400 --> 00:17:19.760 upon his Massachusetts Bay compatriots. What was absolutely clear to William Douglas in 168 00:17:19.760 --> 00:17:24.160 in the mid-part of the 18th century should be absolutely clear to us today. That is, 169 00:17:24.160 --> 00:17:31.160 in the words of Mises, expansion produces first the illusory appearance of prosperity. 170 00:17:31.960 --> 00:17:37.440 It is extremely popular because it seems to make the majority, even everybody, more affluent. 171 00:17:37.440 --> 00:17:42.360 It has an enticing quality. A special moral effort is needed to stop it. On the other 172 00:17:42.360 --> 00:17:48.180 hand, contraction immediately produces conditions which everybody is ready to condemn as evil. 173 00:17:48.180 --> 00:17:53.780 Its unpopularity is even greater than the popularity of expansion. It creates violent 174 00:17:53.780 --> 00:17:59.260 opposition. Very soon the political forces fighting it become irresistible." 175 00:17:59.260 --> 00:18:05.620 Let us therefore heed the wise words of Dr. William Douglas and his plea to an earlier 176 00:18:05.620 --> 00:18:11.300 generation that was under the illusion, like our present day leadership, that a sound money 177 00:18:11.300 --> 00:18:16.220 system was not necessary. And let us as well heed the wise words of another medical doctor 178 00:18:16.220 --> 00:18:28.220 The Founding Fathers had had plenty of experiences with paper money, and it turned the great majority of them firmly against it. 179 00:18:28.220 --> 00:18:42.220 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. 180 00:18:42.220 --> 00:18:45.620 Little wonder that most American statesmen oppose the issuance of paper currency and 181 00:18:45.620 --> 00:18:50.580 money by the government and the constitution they drafted nowhere granted the Federal Government 182 00:18:50.580 --> 00:18:51.580 such a power. 183 00:18:51.580 --> 00:18:51.940 Thank you very much.