By the mid 1700’s Great Britain was at its height of power, but was also heavily in debt.
Since the creation of the Bank of England, they had suffered four costly wars and the total debt now stood at £140,000,000, (which in those days was a lot of money).
In order to make their interest payments to the bank, the British government set about a programme to try to raise revenues from their American colonies, largely through an extensive programme of taxation.
However, there was a shortage of material for minting coins in the colonies. To respond to this shortfall, the colonies began to print their own paper money.
It was known as Colonial Script.
This provided a very successful means of exchange and also gave the colonies a sense of identity. Colonial Script was money provided to help the exchange of goods. It was debt free paper money not backed by gold or silver.
During a visit to Britain in 1763, The Bank of England asked Benjamin Franklin how he would account for the new found prosperity in the colonies. Franklin replied.
“That is simple. In the colonies we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers.
In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one.”
Benjamin Franklin quote in Congressman Charles G. Binderup of Nebraska, Unrobing the Ghosts of Wall Street
America had learned that the people’s confidence in the currency was all they needed, and they could be free of borrowing debts. That would mean being free of the Bank of England.
This was such a powerful concept and in response the world’s most powerful independent privately owned bank, the Bank of England, used its influence on the British parliament to press for the passing of the Currency Act of 1764.
This act made it illegal for the colonies to print their own money, and forced them to pay all future taxes to Britain in silver or gold.
Here is what Franklin said after that.
“In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed.”
“The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the PRIME reason for the Revolutionary War.”
Benjamin Franklin’s autobiography
By the time the war began, on 19th April 1775, much of the gold and silver had been taken by British taxation. They were left with no other choice but to print money to finance the war.
What is interesting here is that Colonial Script was actually working so well, it became a threat to the established economic system of the time.
The idea of issuing money as Franklin put it “in proper proportion to the demands of trade and industry” and not charging any interest, was not causing any problems or inflation. This unfortunately was alien to the Bank of England which only issued money for the sake of making a profit for its shareholder’s.
But did America learn?
Enter in the BANK OF NORTH AMERICA (1781-1785)