Filed under: Capitalism, Freedom, The United States | Tags: Economy, Liberty, The Revolution, Trial and Error
from
Hamilton’s Blessing
The Extraordinary Life and Times of
Our National Debt
by John Steele Gordon
But there can hardly be a poorer credit risk than a newly formed government in rebellion against a Great Power. Such governments vanish with defeat, the leaders are hanged, and their debts become uncollectible. More, the American colonies had had only rudimentary tax systems, and the new Continental Congress, established in 1775, had none at all. The Congress was able to borrow something over $11 million from the French government and Dutch bankers — both countries soon went to war with Britain hoping to take advantage of this situation — mostly for purchases in those countries. And Congress and the states sold bonds to wealthy patriots who were willing to risk the loss of their capital for the cause. But the money raised was not nearly enough. Thus the nascent United States had no choice but to resort to every financial expediency at its disposal in order to feed, equip, and pay the state militias and the Continental army.
The main source of revenue was in fact, the printing press. Congress issued massive amounts of so-called continentals, paper money that was backed by nothing more than a declaration that it was legal tender. By the end of the war these issues amounted to more than $200 million at face value. But this fiat money had quickly depreciated, as fiat money always does. Before the war ended, Congress had been forced to revalue earlier issues at only 2.5 percent of face value, and the phrase “not worth a continental” would be part of the American idiom for a century. Further, the state governments and Continental Congress used what were, in effect, forced loans, requisitioning food and supplies from citizens and paying for the goods with IOUs. These also quickly depreciated as they passed from hand to hand.
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