Financial History 145 Spring 2023 | Page 20

America . The political elite — men such as John Winthrop and Thomas Dudley — had hands-on experience in law and finance at the level of manorial and nobility estates . They were well-versed in bills of exchange , mortgages and all manners of settling debts without coins . Such people needed better forms of payment , and they had the ability to devise alternatives .
The sequence of inventions is staggering , relative to the passiveness of other colonies . In 1631 , Massachusetts made all “ bills ” assignable to third parties . This simple order , possible only in a New World , threw out the window centuries of legal differences between all sorts of financial instruments in England . It enabled anyone ’ s IOU to be passed on and function as a form of payment . In 1635 , lead bullets were made legal tender for small debts . In the 1637 Pequot War , Massachusetts gained access to Long Island Sound , which was the production center of wampum ( the seashell jewelry / money of Native Americans ). Immediately , Massachusetts made wampum legal tender for small debts . In 1639 , bullion brought by privateers was legalized for tax payments . In 1642 , Massachusetts became the first colony to recognize foreign ( Spanish and Dutch ) coins and to encourage their imports — an old European device . Soon private paper money circulated . The abolition of monarchy in England annulled the royal minting prerogative , leading Massachusetts to be the only colony to open a mint ( in 1652 ).
Royalty returned in 1660 , and from 1676 King Charles II pressed Massachusetts on the issue of the independent mint , whose continued operation was seen by royal officials as high treason . The legal tender status of the local coins , debased by 25 % compared to English coins , was also a problem for England . The mint was shut down in 1682 . Shortly beforehand , a first private bank started operations in Boston . It was a bold attempt to implement the hottest financial idea in England — the land bank . It was a bank without coins that catered to people who had wealth in the form of land , but no liquidity . Customers deposited land titles and received in return loans in the form of the bank ’ s paper money that had small , round denominations .
The bank ceased operations in 1683 , perhaps because England threatened to abolish all land titles in the renegade colony . In 1684 , Charles II revoked in
Broadside of the law authorizing the first legal tender currency , dated December 10 , 1690 .
court the charter of the Massachusetts Bay Company . In 1686 , a dictatorial regime — the Dominion of New England — was imposed by the new king , James II . Another attempt at a land bank was made , but it was aborted as soon as the English dictator , Sir Edmund Andros , invalidated all land titles .
With local coins gone and bank projects in ruin , in 1688 Massachusetts was not much better , in terms of its existing currency , than when it was founded in 1630 . Some English coins and grains still facilitated daily transactions within the colony . But the extreme monetary laboratory that operated there during these six decades was not entirely in vain . The shocks of both the new environment and England ’ s constitutional upheavals caused Massachusetts to accidentally replicate humanity ’ s monetary history in 60 years : seashell jewelry , grains , uncoined precious metal , coins and bank notes . As a merchant republic , Massachusetts was already similar to other hubs of financial innovation — Venice and Amsterdam . The opportunity to make a novel step forward soon arrived .
The Glorious Revolution in England ( 1688 – 1689 ) inspired a revolution in
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Boston , which dismantled the Dominion and restored the charter government de facto . The Glorious Revolution also involved the English colonies in a first war with French Canada . The revolutionary Massachusetts government lobbied the monarchs William and Mary to restore their charter at the same time that they launched expensive attacks on Canada . In the fall of 1690 , Massachusetts tried to occupy Quebec City , counting on the expected plunder to finance the soldiers ’ wages . But the mission failed , and the returning soldiers demanded pay .
The amount of money needed to pay wages to thousands of soldiers for their three-month service was too much . The government increased taxes enormously , but it would have taken a long time to collect them ( in coin , grains and other goods ) in a difficult winter after so many working men had been absent . The government knew that Canada itself was issuing paper money ( manually , from playing cards ). Technically , with its printing presses , Massachusetts could easily outdo Canada . However , Massachusetts had a constitutional problem . William and Mary , considering restoration of the colony ’ s charter , would not have been happy seeing Massachusetts once again violating the royal monopoly on money creation . Massachusetts could not impose new money on debtors as legal tender , as it had done with local coins . It certainly could not go a step further and force all sellers to accept a new money under penalty , as in Canada .
The merchants and intellectuals leading the colony had learned from their numerous experiments that an object is more likely to be money if the government itself accepted it for tax payments . Each soldier held a single “ debenture ” stating the colony ’ s debt to him , so the legislature made the debentures legal tender for taxes . That wasn ’ t enough because each debenture was for a large , non-round sum ( a three-months wage ). The solution was then to offer each soldier to sell his single debenture back to the government in exchange for several “ bills ” of small , round denominations that would be convenient for shopping , with the same total face value . Today we call this an open market purchase . No private party was forced to accept the bills — not sellers in the markets , not even the soldiers who could wait for tax proceeds to be collected . Sellers-taxpayers were informed that they
18 FINANCIAL HISTORY | Spring 2023 | www . MoAF . org