The history of American currency falls naturally into three periods: 1. The era of government paper, ending with the ratification of the federal constitution in 1788. 2. The era of bank paper, from 1789 until 1862. 3. The era of contemporaneous bank and government paper, beginning in 1862 and not yet completed.

The government currencies issued by the colonies and by the Continental Congress went down in such frightful ruin, that the power to issue bills of credit was discarded by the States under the national constitution, and was assumed by the general government only after the lapse of three-quarters of a century, and in the heat and exigency of civil war.

The first of the colonial bills of credit were issued by Massachusetts in 1690, to pay the soldiers engaged in the disastrous expedition of that year against the French in Canada. In the equally disastrous expedition of 1711, New Hampshire, Rhode Island, Connecticut, New York, and New Jersey took part with Massachusetts, and all issued paper-money. Pennsylvania began to issue bills in 1723, In 1729 Benjamin Franklin, then twenty-three years old, published a tract advocating a scheme for a new issue of Pennsylvania bills, to be loaned on mortgages of real estate for terms of sixteen years. The plan was adopted, and Franklin got the contract for printing the bills, which he calls "a very profitable job, and a great help to me."1 In 1734 Maryland issued bills for £90,600 sterling. Delaware followed the example of her neighbors in 1739. Virgina issued bills for £20,000 in 1755 to meet the expenses of the Braddoek expedition, and £40.000 more the same year to pay the bounties for killing or capturing hostile Indians. The paper-money of North Carolina was at a discount, in 1748, of 10 to 1. In the course of sixty-eight years South Carolina issued bills amounting to £605,000, of which more than two-thirds were loaned on mortgage of real and personal property. In 1760 Georgia authorized an emission of bills of credit, to be let out in the same way.

1 Frauklin's Autobiography, Bigelow's first edit., p. 186.

Some of these bills were payable in sterling at a future date, and consequently depreciated in proportion to the time which must elapse before they could be presented. Others were interest-bearing notes, and their value depended upon the amount of the issue. Others were legitimate treasury notes, issued in anticipation of taxes and receivable for taxes. These, if the taxes were levied and collected for an equivalent amount, were as good as coin unless they had too long to run; and that difficulty was sometimes overcome by offering, in lieu of interest, a premium of 5 per cent. on the notes at the treasury. In no case, however, were the taxes uniformly assigned to protect the notes, and in no case were the notes permanently maintained at par. The Pennsylvania plan was tried in most of the other colonies-in Rhode Island as early as 1715, when what was known as a "bank" of £10,000 was issued on mortgages of real estate, for ten years, at 5 per cent.1 In Rhode Island the debtor party were soon in a majority, and dictated extensions and terms of settlement. In Pennsylvania the loan-office was managed with more discretion, but the plan was not carried out according to the original intention. In New Jersey a harsher system was adopted ; failure to make payment on the day appointed was taken to be a confession of judgment, and only thirty days were allowed for redemption of the mortgage. Prior to 1751 the bills of credit were generally, though not always, made a tender for private debts; but this provision had no perceptible effect to prevent their depreciation.

1 It is less than a century since the word bank became restricted to its present meaning. Its original signification was an aggregate, sometimes of particles, as in a bank of earth ; or of persons, as in the case of a court sitting In banc ; or of capital, as Bacon, In his essay on Usury, speaks of a "bank or common stock." Our ancestors called any loan fund by this name, whether issued by the government or contributed by individuals.

The result of all these experiments is exhibited in the following table,1 showing the price of £100 sterling in the colonial currencies of 1748:

The paper of Massachusetts was redeemed in 1750, by the payment of coin, in the proportion here indicated, of 1 to 11. In 1752 Connecticut offered silver for bills in the proportion of 1 to 8 5/6, at the expiration of three years; but new issues were made before the process was completed. In Rhode Island the currency grew worse and worse until, in 1770,6 shillings were offered for £8 in old tenor bills, and so the bills were retired at the rate of 26 2/3 for 1 in coin. During the eight years of the Revolutionary war, from 1775 to 1783, the colon issued $209,000,000 in bills of credit, and the Continental Congress $242,000,000. The deluge of government paper rose to $451,000,000 for a population of three millions-a hundred and fifty dollars a head.1 In 1780 the Congress authorized an issue of 5 per cent. certificates,payable in specie in six years, for which the Continental hills were to he taken at the rate of 40 for 1. The certificates, in turn, dropped to one-eighth of their nominal value, and the exchange was never accomplished. The Continental currency became utterly worthless and has remained a type of worthies ever since.2

1 This table is given in Jonathan Elliot's compilation, called "The Funding System of the United States," p. 1G. Where he found it does not appear. The paper currency of Virginia at this time consisted of warehouse receipts for tobacco, and so had a real, though very unstable, value.

1 This is the amount authorized by Congress and by the colonies. It is probable that the issues of Continental money were much larger. See Elliot's Funding System, p. 11.

2 Professor F.A.Walker's sketch of the colonial paper issues, in his treatise on "Money,"includes a good account of the literature of the subject. See