“Not Worth a Continental” Inflation in the Independence Era

“A wagonload of money will scarcely purchase a wagonload of provisions,” George Washington complained in April 1779.^[1] A crumbling economy and the devastating impact of inflation, he believed, was a greater threat to the infant nation than British armies.

Inflation Problems

Americans had long suffered from currency problems. Chronically short of hard money, colonists had launched various schemes to circulate paper. Parliament responded in 1751 and 1764 by restricting the use of paper money as legal tender. With the onset of the War for Independence, the temptation to print paper money was irresistible. 

The Continental Congress first circulated the Continental dollar in 1775 — and the unbacked currency was rapidly devalued. By the summer of 1778, one gold dollar could buy the same goods as four Continentals.  By the end of 1779, one gold dollar was worth between 50 and 100 Continentals. The ones who suffered most from the “galloping inflation” were soldiers, officers and other supporters of Independence who were paid with or took payment in Continental money.

States also released paper money. Virginia churned out enormous quantities, leaving “each new dollar less valuable than its predecessor.”^[2]  Some states exacerbated the problem, continuing to print paper money after the war ended.

Rhode Island was a chief culprit, printing worthless paper, making it legal tender, and requiring that people accept the junk cash. Some creditors left the state rather than take payment in bogus bucks.  It created a historically unprecedented situation, upon which one observer slyly commented, “of debtors pursuing their creditors and paying them back without mercy!” In the landmark case Trevett v. Weeden (1786), the Rhode Island Supreme Court finally declared the state’s legal tender law unconstitutional.

Wisdom of the Founders

The Founding Fathers were alarmed by worthless paper and the inflationary trends of early American history. Edmund Randolph complained that “paper money is viler than the rags on which it is printed.”^[3]  Jefferson worried that paper money would “enrich swindlers” at the expense of honest and industrious men. Fearful of the impact of inflation on commerce, morality and society, Madison argued that fiat money was “unjust, pernicious, and unconstitutional.” Adams believed that money unbacked by silver or gold “represented nothing” and was a “cheat upon somebody.” Ben Franklin wryly noted that fiat currency was “a wonderful Machine...and when we are obliged to issue a Quantity excessive, it pays itself off by Depreciation.”^[4]

Concerns about monetary instability called for a Constitutional Convention. The Constitution (Article I, Section 10) is absolutely clear: “No state shall...make any Thing but gold and silver coin a Tender in Payment of Debts.” In other words, after a disastrous experience with inflation and the irresponsibility of the states, the Founding Fathers wanted a solid currency for the nation.

The most vigorous advocate of economic sanity was John Witherspoon, a Presbyterian minister and the president of Princeton. His frequently-reprinted “Essay on Money” was a classic defense of hard money. He bitterly opposed price controls (a common solution for the inflation problem) as statist, writing, “Remember, laws are not almighty. It is beyond the power of despotic princes to regulate the price of goods.” 

Biblical Principles

Scripture clearly condemns corrupt money.  Proverbs 11:1 says that “a false balance is an abomination to the LORD, but a just weight is His delight.” Isaiah 1:22 decries the debasement of currency, links inflation to a host of other social ills, and notes how widows and orphans are particularly vulnerable in times of economic instability.

Ultimately inflation is larceny. Clipping coins, by shaving off some of the gold or silver and passing them at face value, is theft. Debasing coinage, minting a coin with a base metal and then giving it an external wash of a precious metal, is a form of government theft. And printing unbacked paper money is a relatively easy and painless method of government theft.

Long before the staggering inflation of the Carter years, R. J. Rushdoony emphasized the root causes of the problem.^[5] Inflation and currency manipulation, he warned, were common features of humanistic, statist and socialistic governments.^[6]  An especially pertinent issue of the Journal of Christian Reconstruction focused on the problem of inflation.^[7]

If nations won’t fix their inflation problems, God may. The Lord of Hosts may avenge Himself on His foes — and “smelt away [their] dross as with lye, and remove all [their] alloy” (Is. 1:24-26).

Dr. Schultz is Chair of the History Department of Liberty University, teaches Church History at Christ College, and is pastor of Westminster Reformed Presbyterian Church in Lynchburg, Virginia.  Roger and Ann Schultz are the home schooling parents of nine children.