Paper money revolutionized trade in the American colonies. It enabled the colonies to generate enormous amounts of wealth using a system known as the colonial scrip. This essay uses Benjamin Franklin's "A Modest Enquiry into the Nature and Necessity of Paper Currency" to explore the advantages of the use of paper money as well as analyze Joseph Ernst's "Money and Politics in America, 1755-1775" in which he studies the Currency Act of 1764 and explores it alongside the political economy prior to the revolution. Paper money is favorable and use of it by the colonies made trading easier as can be seen by the cases made by the various sources provided. The topic on Paper money in the American Colonies is crucial as it enhances an understanding of the units of account and the medium of exchange during the colonial era. Besides, discussing this topic will potentially give insights on what is expected in the future. This research paper will explore the introduction of paper money, how it impacted the various colonies, its advantages as well as disadvantages and conclude by analyzing the debate over whether to adopt paper money or oppose it.
In his article "A Modest Enquiry into the Nature and Necessity of Paper Currency" Benjamin Franklin advanced the idea of paper money; he worked as a printer and considered the use of paper-based currency an excellent help for colonies. Besides, at the time of his proposal, Franklin believed in the prosperity of paper money for a variety of reasons. Despite the fact that many people did not see the need to have paper money, Benjamin Franklin believed that a majority of challenges that faced trading activities done by most colonies were due to the lack of paper money.
From the very beginning, most colonies used bartering and trading as a form of exchanging goods with their neighbors, but this proved to be challenging with time. Bartering had more cons than pros since as a business practice, it failed to satisfy both parties that took part in the trade. As time progressed, it could be said that bartering and trading was an unreliable way of doing business as there was no standard for the colonists to use as a guide which in turn caused this practice to be viewed as a complicated or complex process. As a result, other ways of simplifying the trading process had to be developed, and this is where paper money came in.
Despite the fact that other forms of currency existed, they were deemed very costly and risky as compared to the paper money. For instance, there was gold and silver which had been used as a medium of exchange, for quite some time. However, the problem with these currencies lay in the fact that it was expensive and risky to work with and also that both gold and silver ware highly valuable and traders were prone to attacks from thieves. Due to the high value, gold and silver attracted foreign trade which resulted in a shortage in the supply of this currency in some colonies such as Pennsylvania.
In the early colonial period, paper money represented bills of credit which would be redeemable for colonial coins. The British supplied insufficient coins to most of its colonies, and this caused a shortage in the circulation of money. A majority pf the colonies did not prefer using coins provided by the British colonial power, citing various reasons. For instance, despite the fact that the colonial coin or the Spanish coin was the most common coin in circulation throughout the colonies, they were still very rare for the needs of the economy and were often exported as payment to England. This being the case, in his book, Franklin alludes to the idea that the colonies would use paper money as opposed to the coins from the British in an effort to try and assimilate cultures together with the aim of discouraging any form of an uprising. It could be inferred that the colonies would aim to try and make things appear or rather unchanged while at the same time trying to accommodate other cultures or rather other forms of currency. The colonies would instead print and make their paper money as opposed to risk importing the coins and notes from Britain. Due to the inadequacy of coins, colonists resorted to bartering and trading occasionally using Indian Wampum and products such as nails. Precious metals were unsuitable for use due to their costly nature and safety concerns.
To continue, one of the main reason as to why paper money came into existence was the need to have a simplified means of trading. The introduction of paper money meant the traders would be able to carry out activities using more straightforward means of payment. Paper money provided a direct means of payment for goods as one would exchange commodities for the paper money and then use the paper money to get other goods of their choice. This was preferable to bartering which most of the time imposed limitations to the economy. Paper money grew in popularity among the colonists because of its portability which is unlike the concept of bartering and trading as those goods often weren't mobile. Paper money is more manageable and can be divided into smaller units for convenience and transportation. This made it easy for traders to give and take value for their goods and to transact with the correct payments. Bartering and trading emphasized the exchange of goods with other commodities which proved to be difficult as some items were not necessarily divisible into smaller units for trade.
The England mercantilist policies which were put in place by the British government resulted in a shortage of specie. Based on this concept, the Navigation Acts were essentially a mercantilist policy put in place in an effort to control trade and regulate the flow of goods to and from a specific location. While some viewed it as enhancing the world of trade and commerce, others felt as though it dealt more with the presence of power. This is because some of these policies had been aimed at controlling trade and increasing the private wealth and political power. Essentially, the plans were being directed to enforce subsidies to the domestic companies, barriers of trade and more exports than imports within England. The primary goal of the England colonies was to ensure that Britain controlled the surplus trade in return, there would be the flow of silver and gold in London. As a result, many colonies started to experience a shortage of money thus making trade activity difficult.
Furthermore, for any resource such as land or things of that nature to be seen as interchangeable, paper money must be redeemable. Divisibility is one of the requirements and land is a highly divisible resource which makes it reliable to be interchanged or redeemed for paper money. Property is highly durable which again makes it redeemable. When compared to gold and silver, Franklin argues that land is best placed to redeem or "back" paper money since its supply does not fluctuate with the trade. The other disadvantage that rules out gold and silver as being the backup for money is that these resources can be easily exported from the colonies. The land is not portable meaning that it cannot be shipped from the colonies as opposed to gold and silver which makes it perfect for backing money.
Land has many ways in which it can be used to promote paper currency, one of them being used as collateral for loans. According to Franklin, many colonies had set up land banks which would act as a source of paper money for traders. The land banks would only lend money to traders who owned land as this would serve as security. If the trader were unable to pay back the loan, then the bank would seize control of the land used as collateral meaning that the property was used to back paper money. According to Franklin, the land banks would never loan out paper money that was more than the value of the land in an effort to not allow the value of the paper money in circulation to fall.
Paper money was easy to stabilize according to Franklin. The land banks operated in a manner where if there was too much money in the economy, then the land would be sold back to the traders. This would see to it that the amount of money in circulation was reduced as people would have property as backup for paper money. On the other hand, if the amount of cash in circulation was less than, the land banks would offer loans to the traders and in return, get the land as collateral or security for the money borrowed and vice versa. This cycle would then continue until a measure of balance between the money in circulation and the trading activities was reached. The attainment of the standard of stability meant that paper money had been easily stabilized in the economy.
Stabilizing the quantity of paper being used in an economy was considered to be the work of the government through the banks. Earlier forms of currency were hard to regulate since the traders had no control over them. This is mainly because these currencies, for example, coins, were being provided by the British hence the stabilization was almost impossible. Gold and silver were the other currency and these too proved to be difficult to stabilize as their values were too high.5 Benjamin Franklin had various proposals on how the regulation of money was going to be possible in the colonies. He suggested that land banks were better paced in dealing with the issue as compared to what the government could do.
Before the introduction of paper money, trading activities were being done in the form of gold and silver and barter trade. Traders would exchange goods with gold and silver which acted as a form of payment. Barter trade was the exchange of goods with other commodities between the different traders and colonies. With regards to Franklin's perspective, some of the colonies proved to be stronger than others when it comes to the strength of their economies. It can be seen as such because some of these colonies had come up with their own paper money and were putting it to use in their trade activities. This meant that the exchange of goods and services was made easy enabling the presence of a better community. Colonies with their own currencies did not rely on England for the supply of money, therefore, establishing a stronger economy.
The use of paper money has come with many benefits to both the traders and the colonies in many sectors. This form of currency has taken center stage in even the modern world as it has become the standard medium of exchange. However, there are adverse effects that can be experienced if the use of paper money is not regulated. The regulation of this medium of exchange means that its use will be controlled to maintain the desired value of the money in circulation. Most of the colonies had put in place measures that would counter any risks arising from the cash flow. Some of these measures included the land banks which would regulate the value of money in the economy by backing it up with the land resource. Proper use of the land banks would see to it that money in the economy was stabilized in that if there were too little money in circulation, then the bank would lend to the traders.
American colonies suffered from a shortage of money as the supplied amount did not equal the trade activities prior to the introduction of paper money. Some of the risks of paper money included inflation which meant that there was more money in circulation than the trade activities that were taking place. Drawn from this context, Benjamin Franklin solved the issue of paper money upon arriving in Philadelphia in the eighteenth century. At this time, he wrote pamphlets, treatises and also letters about paper money. He designed and printed paper money for the various colonies that were present during this time. In a nutshell, Franklin entertained all the ideas about and propos...
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