CHAPTER XII
PRINCIPLES OF NOTE ISSUE — CONVERTIBILITY
The need of convertibility little understood in the colonies. — Convertibility was
generally assumed in the later period. — Belated land-bank projects. — Other
advocates of an inconvertible currency. — The banking principle as basis for such
a proposal. — Stephen Colwell’s notable statement of the thesis.
THE importance of maintaining the immediate convertibility of
paper money was but little appreciated in the colonial period.
One of the most interesting chapters in colonial banking literature
is concerned with that problem, and the extent to which security,
now in the form of real estate mortgages and now in the form of
staple commodities as well, was substituted for specie reserves
in the schemes of the day, is familiar knowledge to all students of
colonial banking. The operations of the deposit banks of continental
Europe (which virtually issued warehouse receipts, reduced
to common denominations, for the sundry coins in circulation)
were familiar to the colonists, and to many of them, as to
monetary ‘‘reformers” of later periods, it seemed but a logical
step to issue like receipts to circulate as media of payment against
real and personal property of recognized value.
We find in some cases definite traces of the influence of the
English land-bank schemes, and frequent references to John Law
leave no doubt as to the extent of his influence. Franklin thought
that land is a better basis for note issue than specie, in that the
latter is liable to depreciate from sudden increase in its quantity,
whereas land is more stable in value, and probably appreciates
slowly with the gradual growth of population.! “The Earth endures
forever,” several tracts remind us, and must obviously be
the best type of security.?
John Colman, one of the most ardent and best known of the
friends of a plentiful currency, expressed a common disparage-*
Franklin, “Modest Inquiry,” etc. (1729), Works, ii, 268.
* “Money the Sinews of Trade” (1731), Davis’s Reprints, ii, 435; “A Proposal
to Supply a Medium of Exchange” (1737), Reprints, iii, 174.
