Fiat Money?

Monetary creation financed two-thirds of the cost of the war and triggered intense inflationary pressures. The expedient was not unexpected: ‘Do you think, gentlemen, that I will consent to load my constituents with taxes, when we can send to our printer and get a wagon-load of money, one quire of which will pay for the whole.’(Delegate to the 1775 Congress, cited in A, Boles, The Financial History of the United States, from 1774 to 1789: Embracing the Period of the American Revolution (New York, NY: D. Appleton and Company., 1879), p. 38. Boles goes on to note that the ‘conclusion that may be fairly drawn is, the people wanted paper money and Congress would not have done otherwise than it did satisfying this desire. It was necessary for Congress to obey the people, in order to exist.’) Adding to inflationary pressures was the British government’s policy of counterfeiting American currencies. The amounts were considerable, the deception was carried out at a very high level, and it was difficult to distinguish the counterfeit from the authentic note. Finally, there is the question whether the currency issued should be regarded as fiat money or as a zero-interest bearer bond. On this view, the discounts that applied to continental currency issues would simply reflect the market’s assessment of the appropriate rate of interest.