A HISTORY OF CURRENCY IN
THE UNITED STATES
THE MACMILLAN COMPANY
NEW YORK BOSTON CHICAGO DALLAS
ATLANTA SAN FRANCISCO
MACMILLAN & CO., LIMITED
LONDON BOMBAY CALCUTTA
THE MACMILLAN CO. OF CANADA, LTD,
A -HISTORY OF CURRENCY
WITH A BRIEF DESCRIPTION OF THE
CURRENCY SYSTEMS OF ALL
A. BARTON HEPBURN, LL.D.
CHAIRMAN OF THE BOARD OF DIRECTORS OF THE CHASE NATIONAL BANK
FORMERLY COMPTROLLER OF THE CURRENCY, EX-SUPERINTENDENT OF
BANKS OF THE STATE OF NEW YORK, EX-PRESIDENT OF THE
NEW YORK CHAMBER OF COMMERCE, AND EX-PRESIDENT
OF THE NEW YORK CLEARING-HOUSE
" It is only by a sound system of Money and Banking that a
Nation can Achieve Real Financial Independence and Power "
THE MACMILLAN COMPANY
All rights reserved
COPYRIGHT, 1903 AND 1915,
BY THE MACMILLAN COMPANY.
Set up and electrotyped. Published September, 1903.
Rerised and rewritten edition September, 1915.
J. 8. Cmhing Co. Berwick A Smith 0.
Norwood, MMS., U.S.A.
FOR three centuries this continent has been inhabited by
white men. The financial experience that accompanied the
development of the territory now comprised within the United
States, from an aboriginal wilderness to its present proud posi-
tion in the sisterhood of nations, contains much that is crucial
and many severe lessons. In the beginning there was a period
of barter and trade during which commodity paid for commod-
ity. It frequently happened, however, that a man wishing to
purchase goods did not have for exchange anything which the
vendor desired ; this, and the difficulty of making change, in-
spired the colonial governments to provide a currency and to
give it a fixed value in trade and taxes. At first articles of real
value that would go without a government fiat were selected,
such as beaver skins, musket balls, corn, etc. ; later, printed
money with government fiat was resorted to, in many cases with
unfortunate results. At the very threshold of our existence our
forebears, crudely, but nevertheless conclusively, illustrated the
superiority of a currency unit which possessed commercial value
and would circulate because people wanted it, over a currency
which represented the ipse dixit of government.
All of the original thirteen colonies had the same environ-
ment and the same experience. Printing money was very easy
and seemingly inexpensive, since it avoided taxes at the moment.
It was in consequence carried to extremes, depreciated and was
largely repudiated when it came to final redemption. This cur-
rency suffered the vicissitudes inherent in its nature, precisely
as did the French assignats under John Law. The Conti-
nental Congress duplicated the experience of the colonies with
fiat money, not because they did not realize the danger, but
because the Congress had no power to levy taxes and hence
no power to borrow money. Apparently no other resources
were available, coherent action by the separate colonies, with
the imperfect means of communication, being impossible. Again
the same issue was raised, following the Civil War ; the green-
back party, which favored paying the national debt in legal
tender paper money, compelling the holders of interest-bearing
obligations of the United States to accept non-interest-bearing
obligations in full payment and satisfaction, obtained a very
general support and threatened the honor of the government.
The same principles, or want of principles, were presented in
the free-silver campaign that followed the greenback craze ; the
purpose was to take silver .and coin it into dollars whose face
value was largely in excess of its commercial value, the differ-
ence, or seigniorage, so called, representing the fiat of the gov-
ernment. This issue was settled by the gold standard act of
1900. Fortunately, all the schemes of dishonest finance have
been signally defeated by the people and now we are reaping
our reward. We stand forth , preeminently as a nation whose
credit firmly based upon the gold standard is unimpaired, whose
exchange is at a premium the world over, presaging a period of
a world-wide financial growth and development. The story of
our financial history, from the early beginnings to the very
superior Federal Reserve system upon which we have just en-
tered, has all the quality and charm of romance, alike interesting
and instructive. This experience should be of great value as
a guiding influence in aiding us to fortify our present commer-
cial standing and banking power.
This country is governed by public sentiment, which, when
properly informed, may be trusted to reach a wise conclusion,
as clearly shown in the defeat of greenbackism and the free-
coinage-of -silver propaganda. ^ My ^im is to place : . before the
public all the essential facts as to currency, coinage, and bank-
ing, from the wampumpeage currency of the colonies to the
notes of our Federal Reserve Banks, together with the indis-
pensable political history connected therewith.
I have, indulged in no attempt at fine writing, but ha^fi en-
deavored to recite the facts clearly and succinctly in proper
sequence. Few have access to economic libraries covering the
period and the subjects treated in this volume, and few could
conveniently make use of such libraries even if at hand. This
volume is a busy man's library, each subject being fairly treated,
while the Bibliography points the way to further and more
extended research. In the chapter on Colonial Currency I have
made use of the experience of Pennsylvania, because accurate
data was easily obtainable/ and ilso because Pennsylvania's
experience covered all phases of the subject. I have also made
large use of the experience of Massachusetts, and to a lesser
extent Virginia, Rhode Island, New Jersey, and the other colo-
nies, thereby fairly covering the subject and bringing out its
The chapter on Continental Currency, from the confederation .
until the retirement of this currency in 1793, is very complete.
The basis of this book is " The Contest for Sound Money,"
published in 1903 ; but that earlier work has been rewritten and
supplemented so that as now issued it covers the period from
the adoption of the United States Constitution down to the
present time. It deals fully and explicitly with our coinage
laws and coinage by our mints; it gives the complete history
of the national banking system, and contrasts and compares
the banking systems of the various states ; it relates the history
of the legal tender notes and discusses them as a substitute for
taxation, touching upon the political history of the period inas-
much as the question of the legality of these notes was inade
a political issue; the history of the silver controversy is fully
told, especially from the so-called "crime of 1873," when the
silver dollar was demonetized, down to the gold standard act
of 1900; the various international efforts in favor of the bi-
metallic standard are likewise set forth.
The panic of 1907 showed the imperative necessity of improv-
ing our credit and currency systems. The National Monetary
Commission Aldrich Commission dealt with the subject ex-
haustively and procured, reported to Congress and published
to the country full data of the laws and practices of other
nations as well as our own, and laid the foundation for action.
The last Congress, under President Wilson, acted, and the result
is the very satisfactory Federal Reserve Law. Our national
experience leading up to this law and the influence which focal-
ized in its enactment are fully treated, as well as the abnormal
conditions presented by the European cataclysm in 1914, and
the problems and opportunities offered to the United States.
There is an introductory chapter describing the Currency
Systems of all the principal commercial nations and explaining
the emergency measures adopted by European nations to meet
the exigencies of the war of 1914. This chapter will enable the
reader to contrast or compare the currency and credit facilities
of other nations with those of the United States, and for that
reason seems to be pertinent and to give added value to this
Historic Forms of Currency. Forms of Merchandise as Currency.
Wampum. Colonial Paper Issues. Massachusetts Currency. History of
Pennsylvania Currency 1
Early Continental Paper. Finances under the Continental Congress.
Depreciation and Repudiation. Currency under the Confederation. States'
Debts. Cooperation of France 13
SOUND MONEY IN NATIONAL POLITICS
Theories of Sovereignty. Slavery and State Rights. Federal Paper
Money. Finance and Politics. Changing Views of Currency ... 23
THE COINAGE SYSTEM, 1776-1789
Colonial Systems. The Continental System under the Articles of Con-
federation. Reports on Coins and the Establishment of a Mint. Robert
Morris's Plan. Jefferson's Plan. Adoption of the "Dollar" as the Unit
Mint Act of 1786. The Constitutional Provisions 33
THE COINAGE SYSTEM, 1790-1829
Hamilton on the Establishment of a Mint. The Coinage Act of 1792.
Decimal Coinage. The " Dollar " the Unit. Ratio 15 to 1. Foreign Coins
in Use. Their Valuation and Legal Tender. Evident Undervaluation of
Gold. Specie Exported. Reports to Congress upon the Subject. John Q.
Adams. Crawford. Change of Ratio discussed. Efforts to retain Gold . 41
THE COINAGE SYSTEM, 1830-1860
Ingham's Report. Gallatin's Views. Sanford and White Reports. Ben-
ton's Fight for Gold. Southern Gold Mines. The Act of 1834. Ratio
16.002 to 1. Resulting in Establishment of Gold as Standard. The Act
of 1837, corrective merely. Ratio 15.988 to 1. Great Increase in Gold
Production. Export of Small Silver Coins. Steps to Reduce their Value.
The Act of 1853, making Fractional Coins Subsidiary. Increase of Specie.
Gold Standard contemplated. The Act of 1857, finally abolishing Legal
Tender of Foreign Coins. General Review 54
PAPER CURRENCY, 1775-1811
Colonial Currency. Continental Currency. Legal Tender. Inflation
and Great Depreciation. State Banks established. Bank-notes. The
Constitution. Opposition to Paper Money. Hamilton's Report on a Fed-
eral Bank. The Constitutional Contest. The Supreme Court on the Con-
stitutionality of a United States Bank. The First Bank of the United States.
Its Function and History. Recharter defeated. Banks owned by States . 71
PAPER CURRENCY, 1812-1836
Inflation of Bank Currency. War of 1812. Crawford on Currency. Sus-
pension of Specie Payments. Treasury Notes. Dallas and Madison favor
Central Bank. Long Discussions. The Second Bank of the United States.
Provisions of its Charter. Difficulties at Outset. Investigations by Con-
gress. Reformation proposed by Cheves. Violent Contraction of Currency.
Suffolk Bank System. Safety Fund Bank. United States Bank's Salutary
Influence on State Banks. Its Great Usefulness. Jackson's Virulent
Antagonism. " The Bank War." Recharter defeated. Removal of Deposits.
State Bank Inflation. Distribution of Surplus. Liquidation of the Bank.
PAPER CURRENCY, 1837-1849
State Banks again Supreme. Speculative Era. Panic of 1837. Van
Buren's Subtreasury Plan. Treasury Note-issues. Subtreasury Act of
1840. Constitutionality of State Bank-notes. Reaction to Sounder Ideas.
Establishment of Bond Deposit System. Free Banking. Typical State
Banks. Repeal of Subtreasury Act. Defeat of Plan for Third Bank of
United States. Tyler's Plan. The Subtreasury Act of 1846. Mexican
War. Treasury Notes again. Banking Power of Sections . . . . 131
PAPER CURRENCY, 1850-1860
Development of the Reformed Systems. Clearing-houses established.
Western Banks not greatly improved. Disreputable Condition of the Cur-
rency. Influence of Subtreasury System. Inflation of Securities and Cur-
rency. Specie Payments again suspended. Treasury Relief. Buchanan
on Banks. More Treasury Notes., Circulation violently contracted. Salu-
tary Reaction. Banks and Currency in 1860. General Review. Banking
Power by Sections. Several Systems compared. Evils of Subtreasury.
Shuffling Policy respecting State Banks. Development of Government
Note Plan 161
LEGAL TENDER NOTES, 1861-1865
The State of the Treasury in 1861. Chase's Administration. Demand
Note-issue. Suspension of Specie Payments. National Bank-note System
advocated. First Issue of United States Notes. The Legal Tender Feat-
ure. Conversion into Bonds. Temporary Loans. The Second and Third
Issues of Notes. Repeal of Convertible Clause. Interest-bearing Notes.
The High Premium on Coin. National Bank System established. Chase's
Policy reviewed 179
LEGAL TENDER NOTES, 1866-1875
McCulloch's Administration. Retirement of Notes after Close of War.
Congress approves., Subsequently repents and checks Cancellation. Vol-
ume of $356,000,000. Gold Certificates. Rise of " Greenback " Element
President Johnson's Position. The Public Credit Act of 1869. National
Banks attacked. Grant and BoutwelFs Administration. Refunding the
Debt Currency Certificates. Panic of 1873. More Notes issued. In-
flation and reaction. Resumption decreed, 1875. Gold Reserve provided
for. Chronology of the Greenbacks 205
LEGAL TENDER NOTES, 1876-1890
Attempted Repeal of Resumption Act Growth of the "Greenback
Party." Silver Certificate Issue. Resumption quietly effected. Sherman's
Policy. Crisis of 1884. Gold Reserve threatened, 1885. Attempts to in-
crease Note-issues. The Treasury Surplus. Manning and Fairchild in the
Treasury. Windom and the Treasury Notes of 1890. Further Inflation . 228
LEGAL TENDER CASES IN THE SUPREME COURT
The Question of Taxing Notes. Historical Statement The First Legal
Tender Case. Chase's Opinion as Chief Justice. Dissenting Views. The
Decision of 1871, upholding Constitutionality. Chase's Dissenting Views.
Comments on the Decision. The Third Decision. National Power over
Money Supreme. The Dissenting View. Bancroft's Comments . . 254
SILVER QUESTION, 1861-1878
Erroneous Views on Money. Status of Silver during the War. Interna-
tional Conference of 1867. Germany demonetizes Silver. Mint Reform
Measures discussed. Reports to Congress. History of Act of 1873. Omis-
sion of Silver Dollar. The Trade Dollar. Silver Production increases.
Fall in Price. Sectional Agitation for Rehabilitation of Silver Dollar. The
Silver Commission of 1876. Free Coinage proposed. The Bland- Allison
Act of 1878. The Hayes Veto. Silver Certificate Inflation. International
Conference of 1878. Propositions considered and rejected .... 268
SILVER QUESTION, 1879-1890
Silver Agitation continues. Hayes Administration against Silver. Con-
gress divided. Silver Inflation goes on. International Conference of 1881.
The Gold Reserve threatened. Treasury urges Suspension of Coinage.
McCulloch and Manning in the Treasury. Small Silver Certificates extend
Use of Silver. Gold Reserve grows. Fairchild's Measures. British Silver
Commission. Silver Certificates displace Bank-notes. Windom's Silver
Note Plan. Sherman Law " of 1890 . ... 287
NATIONAL BANKING SYSTEM, 1861-1875
Exigencies influencing Change in Bank-note System. Inefficient Act of
1863. Amended Act of 1864. Analysis and Discussion. Act of 1866,
taxing State Bank-notes. Growth of the National System. Limitations
checking Further Development. Opposition develops. Interest on De-
posits. Reform Bills. Crisis of 1873. Act of 1874. Redemption by Treas-
ury, eliminating Note Reserve. " Free Banking" under the Act of 1875 . 306
NATIONAL BANKING SYSTEM, 1876-1882
Increased Circulation. Knox's Reports. Bank Supervision. Green*
backers oppose Banks. Interest Rates. Silver Certificate Issues and Con-
traction of Bank-notes. "Lawful Money" interpreted. Act extending
Bank Charters. Condition of Banks. Banking Power by Sections . . 321
NATIONAL BANKING SYSTEM, 1883-1890
Crisis of 1884. Clearing-house Certificates. Bond Redemptions cause
Contraction. Reforms suggested to increase Elasticity. Surplus Revenue
in Banks. Stringency of 1890. Statistics of Domestic Exchange. Im-
portant Growth of State Banks. Banking Power by Sections . . , 332
SILVER CONTEST OF 1896; 1891-18%
Inflation causes Gold Exports. Silver continues to fall. Free Coinage
Advocates Active. International Conference of 1892. Movement for State
Bank Currency. Treasury Deficits. Gold Reserve impaired. Crisis of
1893. Insufficiency of Revenue. Currency Famine and Auxiliary Currency.
Silver Purchases stopped. Sales of Bonds to obtain Gold. " Coining the
Seigniorage." Asset Bank Currency advocated. Morgan Bond Syndicate.
Efforts to retire Legal Tender Notes. Bryan and Free Coinage. Sound
Money League. McKinley's Election 342
GOLD STANDARD ACT OF 1900
Silver Influence still Potent. Further International Negotiations. Gage
on Gold Standard and Currency Reform. Indianapolis Monetary Conven-
tion, its Comprehensive Measure of Reform. Activity of Gold Advocates.
Spanish War Finances. Era of Prosperity. Gold Standard Law of 1900.
McKinley reflected. Gage's Plan for Elastic Currency. Enormous In-
dustrial Expansion. Money Stringency and Treasury Relief. Shaw's
Policy and Recommendations. Silver Abroad 371
DEFECTS OF THE OLD SYSTEM "AND PROPOSED REFORMS
Nature of Panics. Defects of Financial System. Clearing-house Cer-
tificates. Emergency Currency Law. The Aldrich Commission. The
Currency Commission Questionnaire. Answers of the American Bankers'
Association Commission 387
PROPOSED FEDERAL RESERVE ACT. NATIONAL
Federal Reserve Bill. Details of the Plan. Incongruities of the System.
United States Bonds under the Bill. Cost of Exchange . . . .411
Problem of Sound Currency. Hamilton's Views. Review of Legislation
on Silver. Bank-note Issues. Legal Tender Issues. Legislative Inter-
ference with Currency Supply. Politics and a Central Bank. National
Banking System. Comparison with Other Nations 419
GENERAL REVIEW AND THE FEDERAL RESERVE LAW
Federal Reserve Act. Gold Movements in 1914. Clearing-house Cer-
tificates. Emergency Currency. Effects of European War. Gold Fund
Committee. Cotton Loan Committee. Conclusion . . . 437
CURRENCY SYSTEMS OF OTHER NATIONS
Great Britain. British Colonies. France. Latin Union. Balkan States.
Germany. Other European Countries, including Scandinavian" Union.
Asia. South America. Central America 450
Act of July 13, 1866, Sec. 9 497
Act of March 26, 1867, Sec. 2 497
Act of January 14, 1875 497
Act of March 14, 1900 498
Aldrich Plan for Monetary Legislation 500
Federal Reserve Act 511
INDEX . 545
A HISTORY OF CURRENCY IN
THE UNITED STATES
AFTER the declaration of independence from Great Britain,
the confederated colonies, through the Continental Congress,
assumed to control national affairs, the conduct of the resulting
war, the equipment and maintenance of the army, and the financ-
ing of various national needs.
In order to properly understand and appreciate the history
of the coinage and currency of the United States, it is neces-
sary to recall the existing conditions in respect to money mat-
ters at the birth of our nation, by presenting a brief history
and characterization of the experience of the colonies in deal-
ing with currency problems.
The original settlers upon this continent obtained a precarious
foothold, some failing and some surviving. They were in the
main very poor in purse ; the personnel was composed of those
who fled from least desirable conditions in the hope of better-
ment ; they brought little money, and from the outset the want
of a currency to satisfy their meagre demands in trade was one
of their great hardships. Barter was, of course, available, but
to buy or sell and receive the equivalent in units of generally
recognized value, was impossible, in the absence of a standard
currency. Like all primitive peoples, they adopted primitive
forms of currency.
Hume defines currency "The instrument which men have
2 k 'tijsTORY OF CURRENCY IN THE UNITED STATES
agreed upon to facilitate the exchange of one commodity for
another." It has been aptly said that "coin is to money as
species to a genus" ; coin is usually the basis, but only a part
of the circulating medium; various commodities at various
times have been by law made currency.
The Latins measured the value of property in cattle ; Pliny
tells us the first Latin coins were stamped with a cow. The Latin
word pecus, meaning flocks or herds, thus came to mean money
or property and gave us the derivative pecuniary. Homer tells
us that the brazen armor of Diomedes was valued at nine oxen
and the golden armor of Glaucus at one hundred oxen. Cur-
rency has frequently been made from leather, notably by King
John of France, who had each piece marked by a silver nail.
Adam Smith in his " Wealth of Nations," tells us that iroiLJiails
in a village in Scotland, driexLcod in Newfoundland, sugar in
several of the West Indian islands, and hides in other countries,
were substitutes for coin.
The present currency systems of all commercial nations are,
for purposes of comparison, set forth in some detail in Chapter
The early settlers had no mints save the earth that stored
the precious metals, and no banks save the soil and the waters.
Naturally they made currency of products derived from these
sources. Fish, corn and especially peltry, which was abundant
and eagerly sought by Europeans, were commonly used as cur-
rency. Corn was used as a generic term, including all grain,
even peas. Court fines were imposed in commodities. The fol-
lowing quotations are taken from the colonial decrees and court
records of Massachusetts : "Sir Richard Saltonstall is fined four
bushells of malte for his absence from Court." 1 " Chickataubott
is fyned a skyn of beaver for shooteinge a swine of Sir Richard
Saltonstall." * "It is ordered that come shall passe for
1 Mass., Sept. 28, 1630; Felt, Massachusetts Currency, p. 14.
3 Id., June 14, 1631, p. 15.
COLONIAL CURRENCY 3
payment of all debts at the usuall rate it is solde for, except
money or beaver be expressly named." 1 This made it legal
In order to protect their coin and beaver skins, which were
almost as valuable, "It is ordered that noe planter within the
limits of this jurisdiction, returneing for England, shall carry
either money or beaver with him, without leave from the Gov-
ernor, under paine of forfeitinge the money and beaver so in-
tended to be transported." 2 "It is ordered that hereafter farth-
ings shall not passe for currant pay. It is likewise ordered, that
muskett bulletts of a full boare shall pass currantly for a farth-
ing a peece, provided that noe man be compelled to take above
i2 d att a tyme of them." 3 We also find this decree : "Whereas
two former lawes, the one concerning the wages of workemen,
the other concerning the prizes of comodyties, were for dyvers
good consideracons repealed this present Court, nowe for a voy de-
ing such mischiefes as may follow thereupon by such ill dis-
posed persons as may take liberty to oppresse and wronge their
neighbours by takeing excessive wages for worke, or unreason-
able prizes for such necessary merchandizes or other commody-
ties, as shall passe from man to man ; It is therefore nowe or-
dered y* if any man shall offend in any of the said cases against
the true intent of this lawe, hee shall be punished by fine or
imprisonment according to the quality of the offence, as the
Court upon lawful tryall and conviction shall judge." 4
This was not a dead letter. "Joshua Huyes hath forfect V*
for knyves, and iiii s VI d for scythe, which hee solde for above
mr* in the shilling proffitt." 5
Legislation to prevent extortion on the part of labor lends
a sharp contrast to the trend of labor legislation at the present
time. Governor Winthrop says, "I may report a passage
1 Id., Oct. 18, 1631, p. 16. 2 Id., Mar. 6, 1632, p. 16.