Continental Money

The Colonies under the Confederation

To add to the unfortunate situation the states became involved in quarrels with each other. Having the right to levy duties on imports, they set out to compete with each other for foreign commerce-the one building up its trade at the expense of another. They went a step farther and laid taxes on goods imported from neighboring states. New York laid a duty on imports from New Jersey and Connecticut. New Jersey retaliated by taxing the New York lighthouse on Sandy Hook. New Hampshire quarreled with New York over claims, and Pennsylvania and Connecticut wrangled over land in the Wyoming valley. The whole state of affairs demonstrated the imbecility of the government, and the country was steadily drifting into hopeless bankruptcy and anarchy, when in 1787 a convention met in Philadelphia to form our present constitution, which went into effect March 4, 1789.

With the organization of stable government came a revival in business. Commerce and manufactures began to thrive and expand as soon as men could begin to depend on the future. General distrust and uncertainty gave place to confidence and faith in the future of the new republic. Trade between the states was no longer hampered by troublesome tariffs, and bickerings ceased. The federal government was able to collect its revenues and its obligations were promptly met. Hamilton as Secretary of the Treasury formulated a financial system which bred confidence and created a national credit. Capital began to move in the development of the resources of the country, manufactures began to expand, and commerce redoubled its activity. The federal gov-. ernment assumed the debts of the states, and the holders of continental script suddenly awoke to find that the paper which they had considered of doubtful value was genuine wealth.

Hamilton recommended the establishment of a bank of the United States, with branches in the principal cities. The capital of the bank was to be $10,000,000, and the federal gov-ernment was to own one-fifth of the stock and appoint one-fifth of the directors. The bank was to be a depository of government money, issue paper currency payable in gold or silver and receivable for all dues to the United States, and transact a general banking business. The proposition aroused the fierce objections of those who feared the results of associating government with banking, and the objection was at once set up that the Constitution gave Congress no specific authority to organize a bank. Hamilton then laid down the doctrine of "implied powers," claiming that Congress could by implication do anything "necessary and proper" to carry into effect its express powers, and that a bank was such an agency for the conduct of the finances of the government. This was the beginning of the "loose construction" and "strict construction" theories held by the opposite political parties to the present time. The bank bill was passed and President Washington signed it, creating the United States Bank with a charter for twenty years-1791-1811. The bank served as a balance-wheel to our financial system, and as a manufactory of credit, by giving stability and definiteness to the currency, and enabling the people to economize the use of capital. Branches were established in New York, Boston and six other cities, the parent bank being at Philadelphia. Secretary Gallatin strongly recommended the renewal of its charter in 1811, but after a vigorous debate on the question Congress voted it down.

Hamilton's next important measure was the establishment of a national mint. The coins in use throughout the states were a mixture of English, French and Spanish, gold, silver and copper of various denominations, weights and values. The English system of pounds, shillings and pence had been the standard money of the country. To Thomas Jefferson is due the credit for the adoption of a uniform decimal scale, with the dollar as the unit. Jefferson's mint bill followed closely after this reform, and reduced the metal currency of the country to a uniform system of coins. The double standard of gold and silver was adopted, with a ratio of fifteen ounces of silver to one of gold. The latter being then the dearer metal at that ratio, the cheaper, silver, drove it out of circulation, and silver and paper were the only mediums of circulation. With the decimal system of coinage and a national mintage, the facilities for the computation of values and transaction of business were greatly improved.

At the time of the adoption of the Constitution the exports of all kinds of the new republic amounted to about $20,000,000 annually. Of this amount a very small portion, probably not more than $1,000,000, was manufactured goods, for it must be remembered that before the war England had thrown almost insurmountable hindrances in the way of the manufacturing industries of the colonies. Owing to the scarcity of skilled labor, and its consequent high price, together with the low prices prevailing, the manufactures of the country picked up slowly for the first few years after the close of the war, but by 1789 they began to expand with great rapidity. In that year Congress passed a tonnage act, which taxed vessels built and owned by the United States six cents a ton; those built but not owned in the United States thirty cents a ton; and foreign ships fifty cents a ton. The tariff act which was passed in the same year discriminated in favor of East Indian goods imported direct, as against the same goods imported from Europe. Stimulated by these provisions, exports and imports rapidly increased, and the American flag went to distant parts of the world. New England ships embarked with cargoes for the far East or intermediate ports, to bring home in return immense quantities of coffee, spices, tea, silk, nankeen and other cloths, all of them articles of great value in comparison with their bulk, and hence yielding good profits to the carrying trade. Portions of these cargoes which did not find a ready market at home were re-shipped to Hamburg and other European ports. Thus American commerce rapidly expanded, and shipbuilding became more active, so that while in 1789 less than one-fourth of our ocean traffic was in American vessels, in 1792 less than one-fourth was in vessels not American.