Currencies of the Colonies
One of the earliest forms of money, borrowed from the Indians, was wampum, black and white polished beads made from clam shells. Wampum circulated as legal tender(注1) for private debts in Massachusetts until 1661 and was used as money in New York as late as 1701. In Maryland and Virginia, tobacco was initially the principal medium of exchange, while other colonies designated as "country pay" (acceptable for taxes) such items as hides, furs, tallow, cows, corn, wheat, beans, pork, fish, brandy, whisky, and musket balls. Hurried public officials were often swindledsintosreceiving a poor quality of "country pay."
Clearly, one of the major problems in using commodity money(注2), besides inconvenience, spoilage, and storage difficulties, was quality control because it was in an individual's self-interest to make payments whenever possible with low-quality goods. One of the earliest domestically(注3) initiated regulations, the Maryland Tobacco Inspection Act of 1747, addressed this issue. The Act was mainly designed to increase the value of tobacco exports from Maryland. This move toward quality control ultimately did raise the value of Maryland's tobacco exports, but it also set firm standards of quality control for tobacco money. In fact, because paper certificates called inspection notes were given on inspected tobacco, the circulation of money became easier. A Maryland planter in 1753 reported on "the Advantage ofshavingsTobacco Notes in my pocket, as giving me credit for the quantity mentioned in them wherever I went, and that I was thereby at large to dispose of them when, to whom, andswheresI pleased; whereas, before this Act, my credit could not be expected to go beyond my own Neighborhood, or at farthest,swheresI might be known.(注4)”
Despite the problems, commodity money was extensively used in the colonies in the seventeenth century. By the early eighteenth century, however, both specie(注5) (gold or silver) and paper currency were common in the major seaboard cities, and by the end of the colonial period, commodities—particularly furs—were accepted only in communities along the western frontier(注6).
Because of the sizable colonial trades with many overseas areas, the gold and silver coins of all the important commercial countries of Europe and their dependencies(注7) in the Western Hemisphere were freely exchanged throughout the eastern seaboard. More important than English coins, which could not be legally exported from Britain to the colonies(注8), were the sliver coins of the Spanish mint. These were struck in Mexico City and Lima and introducedsintosthe colonial economy via vigorous trading with the Spanish colonies. Spanish dollars were so common in the colonies that the coin was eventually adopted as the monetary unit of the United States.
Although Massachusetts first attempted to mint coins of low bullion(注9) content as early as 1652, the colonies eventually turned to paper to increase their meager and undependable(注10) money supply. The promissory notes(注11) of well-known individuals and bills of exchange(注12) drawn on English merchants readily exchanged hands for several months. In addition, treasures of the various colonies began to issue promissory notes in advance of tax collection and issue written orders to town officers requiring the payments of obligations from local stores; like other negotiable instruments, these pieces of paper were exchanged on endorsement(注13) as money.
In 1690, Massachusetts issued the first bills of credit to pay soldiers. During the next 65 years, at least eight other colonies followed this example to meet financial emergencies, especially payments of war-related efforts. Bills of credit were issued with the proviso(注14) that they were to be redeemed in specie at some future date; in the meantime, they were accepted for taxes by the issuing colony. Such redemption provisions, although restricted, facilitated the free circulation of these bills as money. In some states—notably Rhode Island, Massachusetts, Connecticut, and South Carolina—the bills were commonly overissued, thereby depreciating their value relative to specie. The same difficulty was encountered with the paper of the publicly owned "banks" established by colonial governments(注15). These institutions, unlike anything we call a bank today, issued "loan bills" to individuals, usually based on the security of land or houses. Borrowers used the bills to meet their obligations and were usually required to repay the debt, with interest, in annual installments.
Occasionally, despite public issues of paper, private remedies were still undertaken, as exemplified by one merchant's April 1761 announcement in the Maryland Gazette:“As I daily suffer much inconvenience in my Business for Want of(注16) small Change, which indeed is a universal Complaint of almost everybody in any Sort of Business, I intend... to print ... a parcel of small notes, from three pence to two shillings(注17) and six pence each, to pass current at the same rate as the Money under the Inspecting Law, and to be exchanged by me...for good Spanish Dollars at seven shillings and six pence each dollar.”