Military history


The Currency Act


MOST MEMBERS of Parliament, of course, agreed with the notions of sovereignty that Grenville’s and Halifax’s reforms embodied. Their lack of reservations about the American Duties Act indicated as much; and so, in an even more revealing way, did their nearly simultaneous passage of the Currency Act of 1764. This measure was not part of the ministry’s program for the colonies, yet it was so deeply consistent with the ministerial measures that American colonists would assume that they formed part of the same design. They were not entirely wrong in that perception. While the pattern was not a conscious one, the Currency Act grew out of the same attitudes and perceptions that generated the Proclamation of 1763 and the American Duties Act, and which would soon produce the Stamp Act and the Quartering Act. Like all these measures, the Currency Act emerged directly from the experience of the war, the sense that certain practices that had benefited the colonies at Britain’s expense needed to be changed, and the conviction that the House of Commons had both the right and the duty to make the necessary alterations.

When Anthony Bacon, the honorable member for Aylesbury and (as it happened) the man elected to replace John Wilkes, moved on April 4 to introduce a bill that would deprive the provinces south of New England of the authority to declare that the paper money they had issued was legal tender for the payment of private debts, he was responding in a public forum to the private concerns of merchants who traded to Virginia. He was himself such a merchant and thus knew how the war had occasioned big colonial currency issues and how those in turn had affected the value of debts the colonists owed their English creditors. What specifically worried him was a conjunction of factors unique to the Virginia trade at the end of the war. These included the volume of paper money the province had issued to finance its military efforts, the House of Burgesses’ stipulation that Virginia’s treasury notes were to pass as legal tender for the payment of private debts, the long-term increase in the amount of money Virginia planters owed to merchants like himself, and the sudden rise in the rate of exchange between Virginia currency and British sterling at the end of the war. 1

Like most of the colonies, from 1755 Virginia financed its war effort by issuing fiat paper money in amounts large enough to cover current expenditures. These notes were in effect IOUs printed by the colony government and given value by the colony’s assurance that it would accept them in payment of taxes. A bit less than a quarter million pounds’ worth of such notes remained in circulation by early 1764. Although Virginia’s treasurer could not redeem notes presented to him in gold or silver, as the treasurers of Massachusetts or Connecticut could because their provincial currencies were backed by specie, the province’s money had held its value reasonably well. In part this was because the House of Burgesses had been conservative in the amounts it had allowed to enter circulation, stipulating the future taxes that would be necessary to remove the notes as it issued each block of them, and then adhering more or less responsibly to the schedule of withdrawal-by-taxation. In part, too, Parliament’s subsidies and the specie that the army and navy had spent in America had tended to support the value of all colonial currencies so long as hostilities had lasted. As the war wound down, however, military spending tapered off and British capital markets contracted. Sterling bills of exchange, with which Virginians settled their overseas debts, became more expensive.

In passing the legislation authorizing the province treasury to emit notes, the House of Burgesses had set the par of exchange at 125, meaning that £125 Virginia paper was in theory to be the equivalent of £100 sterling. Although £100 sterling bills of exchange actually had sold for £125 Virginia currency for a couple of months early in the war, from 1757 through 1761 the actual rate of exchange had hovered around 140. This was an inflated value, but so long as the rate remained relatively steady and so long as the Virginians paid their debts to British creditors in sterling bills of exchange rather than with Virginia treasury notes, the London merchants had little to fear: they knew that when their debts fell due the planters would be paying them in money worth roughly what it had been at the time the loans were made. Merchants like Bacon who traded heavily to Virginia became alarmed in 1762, however, when the exchange rate climbed from the 140s to about 160. They pressed the Board of Trade to protect their investments, and in February 1763 the board complied by trying to make the Virginia Assembly rescind the currency’s legal tender status. In May, however, the Burgesses replied that the county courts were executing judgments against debtors at the actual rate of exchange, not at par, so there was no need to take action.

Their timing could hardly have been worse. Early that summer, a sudden crisis in international finance shook the City of London, threatening financiers and merchants, including those who traded to the colonies. Dutch bankers had lent a great deal of money in Britain during the war, so when an overextended Amsterdam house, Gebroeders Neufville, collapsed and precipitated a panic that soon spread to all the financial centers of northern Europe, British bankers and merchants found themselves scrambling to cover their obligations.2 As the big London firms pressed their debtors—including, of course, traders to the colonies—for payment, men like Bacon worried about their outstanding debts. Solvency now depended on their ability to collect the money due them in Virginia at the market rate of 160, not at the official par of 125. Because its “legal tender” character made Virginia currency impossible to refuse when offered in payment of private debts, they worried that the planters would try to cheat them by tendering Virginia currency at the official rate, rather than what they desperately needed: sterling bills of exchange on London, reflecting full market value.

Interestingly enough, during the summer of 1763 Grenville had actually contemplated a currency bill for the colonies as part of his larger scheme of imperial reform: not to protect merchants like Bacon from inflation, but rather to create a common American currency that would facilitate payment of taxes to the British Treasury and ease the colonies’ chronic money shortage. For reasons that remain unclear (possibly because he wanted to use revenue from his intended stamp tax to back the colonial currency, in effect offering a stable money supply as quid pro quo for accepting direct taxation) Grenville dropped the plan. Thus on April 16, 1764, Bacon’s American currency bill, which the House had debated briefly and then passed on a voice vote, became law—not at the ministry’s direction, but with its acquiescence. Unlike the currency measure that Grenville had pondered, which would have improved colonial finances and facilitated commerce within the empire, the Currency Act of 1764 served only the interests of London’s jittery merchants. As the colonial agents who tried to argue against it pointed out, the net effect of a law forbidding colonial currencies from passing as legal tender within the colonies could only be to make business and exchange within America even more chaotic and uncertain than it was. Yet the debates on the bill suggest that the M.P.s passed it because they believed American debtors were manipulating exchange rates and inflating colonial currencies to defraud English merchants of their investments.

The Currency Act of 1764 aimed specifically at Virginia but was phrased broadly to include all of the mainland colonies south of New England, where the Currency Act of 1751 was to remain in force and hard-money regimes would operate as before. The act stipulated that all currencies in these colonies currently passing as legal tender had to be taxed out of circulation on an announced schedule, and might not be extended by act of any provincial assembly. It did not specifically prohibit future issuance of colonial currencies, but it strictly forbade colonial legislatures from ever again declaring paper money to be legal tender “in payment of any bargains, contracts, debts, dues, or demands whatsoever.” This obviously applied to the private debts that Americans owed British creditors, but the language was broad enough to include debts held internally, between colonist and colonist within the individual provinces. From the perspective of the agents who tried to protest, this was bad enough; but in fact the wording was so inclusive as to suggest that the colony governments could no longer even make their currency legal tender for public debts—that is, for the payment of taxes.3

If this was indeed the case, the act would upend public finance in every colony south of New England, where the Currency Act of 1751 at least permitted province currencies as an acceptable legal medium for tax payments. There was no other way for colonies that lacked adequate supplies of currency to pay for wars and other government expenses except by issuing paper money—and no way to maintain that money’s value except by taxing it out of circulation (and usually by paying a modest interest on the bills when their holders tendered them to the treasury) after the stipulated period. Unless province currency could at least be deemed legal tender for payment of taxes, it would rapidly, inevitably, depreciate to worthlessness. Since at that moment several of the colonies affected by the act were trying to defend their frontiers against Indian attack, this was scarcely a theoretical concern. The Commons had found a vastly inopportune time to diddle with colonial public finance.

And yet in the truncated debate on the bill only a few M.P.s quibbled with it. No one questioned the Commons’ right to intervene in colonial affairs or suggested that it might be imprudent to do so, in that way, at that moment. And nobody paid much attention to the colonial agents who objected to the act’s likely effects and sought to propose alternatives. Unlike the prewar Parliaments, which had been markedly reluctant to involve themselves in colonial affairs, this one had shown itself willing to take the bit of reform in its teeth and charge ahead, with or without a ministry’s direction.

For George Grenville, whose job was to herd 558 unpredictable M.P.s in the general direction of the common good, the message in their passage of the Currency Act could scarcely have been clearer: he could take the lead in reforming relations with the colonies, or he could be trampled by temporary majorities acting according to their own notions and agendas. But the colonists, who lacked a clear sense of the internal workings of the House of Commons and did not understand its newfound activism, saw the emergence of American policy differently. In the sudden wave of reform rising from Westminster they perceived not the hasty and uncoordinated actions of ministers and M.P.s, each responding to short-run concerns on the basis of common assumptions and prejudices, but rather a degree of design and management that was not, in fact, there. The colonists did not understand how the war had raised awareness of American affairs in the House of Commons; nor did they see how unlikely the right honorable members were to interpret their objections in a favorable light.

Throughout the weeks in which the government proposed its reforms and the House of Commons adopted them, the two most striking features had been, as it were, absences: the absence of debate and opposition, which we have seen; and the complementary lack of any sense that there might be alternative means to achieve the ends of financial stability and military security in postwar North America. Why not request the colonists’ financial support rather than try to compel it? Why not ask the colonial assemblies to raise provincial troops and garrison the necessary posts? The war’s lessons, as understood in Whitehall and Westminster, answered those questions simply enough: there was no relying on Americans. The war had proven, to the satisfaction of everyone who had a voice in the formulation of policy, that American assemblies would only support the empire if they could profit from it; that American taxpayers were tightfisted and self-interested; and that American soldiers were too insubordinate and desertion-prone to be entrusted with colonial defense.

But had the war really proven those things so unequivocally? The last years of the conflict, in fact, could be understood to have shown exactly the opposite. From 1761 through 1763, over nine thousand provincials a year had volunteered for service, primarily in order to free regular troops for campaigns in the Caribbean. The armies in those years had been notably free of the mutinies and mass desertions that had cropped up so regularly in preceding autumns, merely because when the provincials enlisted they agreed to serve (and be paid for serving) not for eight-month campaigns, but for annual tours of duty. It should not have been inconceivable to carry on with such a system, enlisting (or reenlisting) nine or ten thousand provincials every year, to serve under the regular officers whom the king wished to keep in service, and to pay them by royal requisitions from the colonial treasuries. Yet men like Halifax and Grenville could not imagine it, for they remembered not the comparatively placid years at the end of the war when the colonial governments raised 80 or 90 percent of the men requested, but the difficult years of the war’s beginnings. No one suggested that the Treasury might merely request support from the colonial legislatures, because the memory of American war finance centered on Braddock’s and Loudoun’s failure to make the colonies contribute to a general fund for the army’s support. British politicians in general assumed that the million pounds sterling that Parliament had given the colonies as a reimbursement had paid for the colonial war effort, or most of it. No one noted that Parliament’s transfer payments had covered only about two-fifths of the war’s total cost to the colonies, and that the inhabitants of many provinces were presently struggling to pay off the public debts those wartime expenditures had occasioned. 4

That British policy makers in 1763–64 reverted as if by instinct to measures that dated to 1748–54, then, comes as no surprise. Some of the most influential men engaged in formulating and approving policy proposals—including most significantly the earl of Halifax and Charles Townshend—had acquired their deepest familiarity with the colonies during the years after King George’s War, when they had first responded to problems of control that seemed in retrospect to foreshadow the more intense problems that the Seven Years’ War had spawned, and which they were now determined to solve. Others, particularly George Grenville, drew on attitudes formed when they applied themselves to meeting the fiscal challenges that grew out of Pitt’s extravagantly expensive, and excessively successful, war leadership. None of them actually asked, because no one thought it worthwhile to ask, how much the colonial governments might be willing to continue contributing in order to maintain the empire they had helped to build. They grasped neither the real extent of colonial contributions nor the depth of the war’s emotional impact in America.

Thus the hard experiences of defeat, lack of control, and financial stress—the predominant themes of the years from 1754 through 1757— dominated the understandings of the men who made policy for the postwar empire and encouraged them to adopt measures that would subordinate the colonies to Britain. But the war had other meanings—as a providential victory, secured by the cooperation of free men in a glorious cause—that shaped the understandings of the colonists, lifted their expectations of imperial partnership, and embittered their reactions to the seemingly high-handed, intrusive policies that Grenville, Halifax, and their colleagues sought to impose. The Seven Years’ War had reshaped the world in more ways than anyone knew. But the lessons both Britons and Americans derived from the conflict would prove inadequate guides when men on opposite sides of the Atlantic tried to comprehend what those changes meant, and dangerous ones when each tried to understand the actions of the other.5

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