Private Paper Money in Colonial Pennsylvania

Private Paper Money in Colonial Pennsylvania

In 1766 eight Philadelphia mercantile houses issued short-term, interest-bearing promissory notes that circulated as a medium of exchange. The experiment was short-lived but represents the first instance of private money in what was to become the United States.

The colonial economies suffered from a shortage of currency. Parliament forbade the coinage of money in the colonies, and the enactment of the Currency Acts of 1751 and 1764 restricted the authority of colonial governments to issue paper money. In addition, colonial economies invariably faced an excess of imports over exports, and an outflow of metallic currency paid for the extra imports, further leaving the colonial economies impoverished of currency. Colonial governments lobbied for the repeal of the Currency Act of 1764, not because of a need to finance budget deficits, but because a currency shortage was strangling the colonial economies.

By 1766 the shortage of colonial currency led to an appreciation of colonial currency relative to British pounds sterling, putting at a disadvantage export merchants who earned British pounds sterling in exports and had to convert British money back into colonial money to purchase colonial goods for export. The currency appreciation enhanced the incentives for creating fresh supplies of colonial currency that could be used to purchase colonial goods for export to earn British pounds.

Eight Philadelphia mercantile companies saw an opportunity to issue private notes, easing the shortage of a circulating medium of exchange and purchasing domestic produce at good prices for profitable export. These firms issued 30,000 pounds in short-term, interest-bearing promissory notes to pay for “Wheat and other Country Produce.” The notes were payable in nine months in British sterling pounds.

A public outcry rose up against the issuance of private paper money for profit. Nearly 200 provincial merchants put an advertisement in the Pennsylvania Gazette on 11 December 1766 declaring that they would not accept these notes in payment for goods. A month later the inhabitants of the city and county of Philadelphia petitioned the General Assembly, the Pennsylvania colonial legislature, pleading that the privilege to issue money belonged only to the legislature. Eventually the king’s attorney general and solicitor general took up the issue and declared that the notes were probably not illegal, but the notes were withdrawn in the face of a strong negative public reaction.

After the War of Independence private banks began to issue bank notes, but during the colonial period the issuance of paper money remained strictly a government prerogative.