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Published by EH.Net (August 2023).

Dror Goldberg. Easy Money: American Puritans and the Invention of Modern Currency. Chicago: The University of Chicago Press, 2023. xi + 346 pp. $55 (hardback), ISBN 978-0226825106.

Reviewed for EH.Net by Jane Knodell, University of Vermont.

 

This book is the culmination of Dror Goldberg’s research into the bills of credit first issued by the Massachusetts Bay colonial government in December 1690. Other British North American colonies followed suit over the course of the 18th century, giving rise to a large economic history literature on the performance of colonial bills of credit. Goldberg’s purpose is not to contribute to this literature, in which Massachusetts is a case study in what not to do. Rather, he seeks to convince his readers that the bills of credit were a revolutionary monetary invention, and to explain why this monetary revolution happened where it did.

For Goldberg, the 1690 bills of credit were revolutionary as the first legal tender currency. Goldberg acknowledges, as he must, the paper currencies that appeared earlier and in other places, such as the paper notes issued by London goldsmiths and the playing card money of Quebec, but none of these marked a “fundamental change in the legal foundation of money”, and they did not shift the “anchor of money . . .from intrinsically valuable goods to the circulation of money in and out of the public treasury” (p. 5). The bills of credit were much more than just a “natural, almost trivial development from recent paper moneys . . .” (p. 193); their creation was an “intellectual triumph of uncovering the true nature of money in the fiscal state” (p. 258).

The December 1690 decision to issue bills of credit, and subsequent “upgrades” to the currency in 1691-92, are treated with detailed historical analysis in the third section of this book. The chapters leading up to the main event are written with a broad historical brush and cover monetary laws and practices in a wider geographic area (the British Empire in the Atlantic) and over a longer time period (late sixteenth century to late seventeenth century). These chapters help Goldberg make the case that Massachusetts was different and special, and primed for monetary invention. As an organizing conceptual device, Goldberg applies Joel Mokyr’s supply and demand framework for explaining inventive activity (Mokyr 1990) to the 1690 Massachusetts bills of credit.

Massachusetts had both high demand for a new monetary technique to supplement specie and the ability to supply the technique. Its monetary system had to be more complex than those of the colonies that produced goods demanded in England with slave labor. As a colony that made its living off multilateral trade and services, Massachusetts (or at least Boston) was more monetized. It was populated mainly by middle-class families that demanded a variety of goods and services. It had an accountable government, notwithstanding restrictions on citizenship. Perhaps most importantly, Massachusetts had a long history of monetary invention.

Goldberg makes effective and extensive use of the records of the Massachusetts Bay Colony (later, Province) to explain exactly what these bills were from a legal and constitutional point of view, why they were issued, who issued them and how, and what gave the bills “currency.” The 1690 bills were essentially a printed promise on the part of the Colony to “the possessor” that the bills would be received in all public payments “equal to money.” Taxpayers could discharge their tax obligations to the Colony using the Colony’s printed promise; this was essentially a setoff of one debt against the other. Setoffs had previously been done bilaterally in the treasurer’s ledgers; now they could be done multilaterally, with an instrument that allowed one colonist to pay taxes using a debt instrument originally issued to other colonists to extinguish their claims on the Colony. The bills made possible a “coin-free settlement of public debts . . . on a massive scale” (pp. 191-192). This is an original and important insight into the economic mechanism behind the bills of credit. It also raises the question of whether the bills of credit were a public finance innovation (provide a better mechanism for public debt settlement and tax payments), a monetary innovation (provide an adequate stock of money for the local economy), or a combination of the two.

The timing of the decision is crucial for Goldberg. In December 1690, Massachusetts was provisionally operating under the framework of its annulled charter and waiting for its next charter. The Colony faced payment demands from soldiers and seamen returning from a failed expedition to Quebec, and there was no specie in the colonial treasury (the Colony did try, unsuccessfully, to borrow specie shortly before it issued the bills). It was of paramount importance not to offend either crown or Parliament. Colonial leaders went to great lengths to make it look as if they were not creating “money”, which their predecessors had done with the mint, to the displeasure of the crown. The Colony was only issuing promissory notes, which anyone was legally allowed to do.

The Colony used no coercive measures to get the bills circulating in the local economy. It simply gave its creditors (of which there were many, due to its war debts) the option of exchanging existing debt (debentures issued to soldiers and seamen, loans from the monied elite) for the bills. It was the creditor’s choice whether to take the Colony up on its offer, but Goldberg shows how the Colony made the offer attractive, and alternative options unattractive. From a creditor’s point of view, the money-like characteristics of the bills of credit (useful denominations, standard appearance, and easy transferability as bearer instruments) made them a more liquid instrument than the debentures, made payable to specific individuals in irregular and sometimes very large amounts.

Still, for the bills to function as currency, they had to be accepted by sellers in payment for goods and services. Individual sellers had to know that they would be able to pass the bills on to someone else. Goldberg acknowledges that the bills were initially rejected, or accepted at deep discounts, in retail trade. In 1691, the Colony responded by passing laws that made bills better than either specie or foodstuffs in public payments. In 1692, after receiving its new charter, the Colony ruled that the bills would “pass current within this Province equivalent to money.” With these upgrades, the bills “became normal money, circulating into the treasury and out of it . . .” (p. 217).

But did the bills circulate broadly in the economy? This strikes me as an important issue which is not fully addressed. Although the evidence on how different moneys were used is certainly limited, merchant account books and ledgers (such as Samuel Sewall’s) could have been used to show that the bills of credit were used as money in payments between private individuals. It was Boston merchants’ acceptance of the bills of credit that turned them into money that circulated at large in the colonial economy, and not just between taxpayers and the colonial treasury. In this sense, seen as a monetary invention, the bills of credit were a joint product of the colonial government and the merchants that were closely aligned with the government and its aspirations.

Easy Money is a major contribution to North Atlantic monetary history. There has been little economic history scholarship on the pathbreaking Massachusetts bills of credit since Davis (1901) and Felt (1839). The book is exceptionally well written. Goldberg uses an eclectic method, blending legal analysis, historical analysis, and economic reasoning, all clearly explained without models. The book pulls off a neat trick by being very engaging for economic historians and at the same time accessible to a broad audience.

References:

Account book of Samuel Sewall, Mss 514, R. Stanton Avery Special Collections, New England Historic Genealogical Society, online at DigitalCollections.AmericanAncestors.org.

Davis, Andrew McFarland. Currency and Banking in the Province of the Massachusetts Bay. 2 vols. New York: Macmillan, 1901.

Felt, Joseph. Historical Account of Massachusetts Currency. Boston: Perkins and Marvin, 1839.

Mokyr, Joel. The Lever of Riches: Technological Creativity and Economic Progress. Oxford: Oxford University Press, 1990.

 

Jane Knodell is the Mark J. Zwynenburg Green and Gold Professor of Financial History at the University of Vermont. She is currently working on a book manuscript with Catalina Vizcarra on the production and regulation of money in colonial North and South America.

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