From Wikipedia, the free encyclopedia
Colonial Scrip was a paper fiat money as opposed to specie issued by the colonies in the pre-revolution era, up until 1775. It was an altogether different money from Continental currency; which was money issued during the American Revolution, that depreciated rapidly, to fund the war effort.
Conception
Colonial Scrip was not backed by gold or silver and therefore the Colonies could control its purchasing power. This was a revolutionary concept in economics, because the conventional European mercantilist system of money required governments to borrow from banks and pay interest for those loans, as gold and silver were the only regarded forms of money. This is known as the debt-based money system, where banknotes are “bills of debt.” Colonial Scrip, however, were “bills of credit” created by the government, based on the credit of that government, and this meant that there was no interest to pay for the introduction of money. This went a considerable way towards defraying the expense of the Colonial governments and in maintaining prosperity. The Governments charged low interest when it loaned out this paper money to its citizens, with land as collateral, and this interest income lowered the tax burden on the people, contributing to prosperity.
The currency was born when a lack of gold and silver in the Colonies made trade hard to conduct, and a barter system prevailed. One by one, the Colonies began to issue their own paper money to serve as a medium of exchange to make trade vibrant. The Governments could then retire excess notes out of circulation by taxing the people, helping some Colonies generally avoid inflation. Each Colony had its own currency and some were better managed than others. It was banned by English Parliament in the Currency Act after Benjamin Franklin had explained the benefits of this currency to the British Board of Trade. Outlawing the circulating medium caused a depression in the Colonies, and Franklin and many others believed it to be the true cause of the American Revolution.
Pennsylvania
The Pennsylvania version of this currency was said to be the most effective, because they controlled the money supply and issued only enough notes so as to satisfy the demands of trade, preventing inflation. In 1938, Dr. Richard A. Lester, an economist at Princeton University, wrote that “The price level during the 52 years prior to the American Revolution and while Pennsylvania was on a paper standard was more stable than the American price level has been during any succeeding fifty-year period.” Pennsylvania established a “land bank” that allowed landowners to borrow Scrip with their land as collateral. They could borrow twice the value of their land, half of it representing actual land value, and the other half representing production potential of the land. The loan was to be retired over a set period of years, with the land onwership being restored to the citizen upon payment. When the loan was fully retired, another loan could be taken out.
Benjamin Franklin
Benjamin Franklin helped create the Pennsylvania Scrip, and in his autobiography he wrote of this currency:
The utility of this currency became by time and experience so evident as never afterwards to be much disputed
Franklin believed the shutting down of this paper money by Parliament in 1764 was the principal cause of the American Revolution, as did many other prominent Americans. Peter Cooper, founder of Cooper Union College, Vice-President of the New York Board of Currency, US Presidential Candidate in 1876, and one-time colleague of Secretary of the Treasury Albert Gallatin said in his 1883 book Ideas for a Science of Good Government:
After Franklin had explained…to the British Government as the real cause of prosperity, they immediately passed laws, forbidding the payment of taxes in that money. This produced such great inconvenience and misery to the people, that it was the principal cause of the Revolution. A far greater reason for a general uprising, than the Tea and Stamp Act, was the taking away of the paper money.
Adam SmithAdam Smith wrote of the Pennsylvania currency in his famed 1776 work The Wealth of Nations:
The government of Pennsylvania, without amassing any [gold or silver], invented a method of lending, not money indeed, but what is equivalent to money to its subjects. [It advanced] to private people at interest, upon [land as collateral], paper bills of credit…made transferable from hand to hand like bank notes, and declared by act of assembly to be legal tender in all payments…[the system] went a considerable way toward defraying the annual expense…of that…government [low taxes]. [Pennsylvania’s] paper currency…is said never to have sunk below the value of gold and silver which was current in the colony before the…issue of paper money.
External links
- Currency Issues to Overcome Depressions in Pennsylvania, 1723 and 1729
- The Autobiography of Benjamin Franklin, Part XXIV
- Ideas for a Science of Good Government 1883
- Adam Smith: The Wealth of Nations, Book V:On the Revenue of the Sovereign or Commonwealth, Chapter II
- Creating the U.S. Dollar Currency Union,1748-1811: A Quest for Monetary Stability or a Usurpation of State Sovereignty for Personal Gain?
- Miscounting Money of Colonial America
Friends of the American Revolution 
Excellent presentation of a vitally important topic; deserves the widest possible dissemination.
Some missing points, namely were loans in Pennsylvania pounds at interest or only the principle needed to be paid back. Getting into further detail about how they balanced the amount of currency for required transactions, and how often they amended that, would really help.
It’s a good question Mr. Malouf … one that deserves further historical study. But interest free mortgages are definitely possible under a scrip system!
The colony could create money as needed for public projects and spend it into circulation to put people to work on those projects.
With the power to create money there is no need for a tax revenue … you simply print what you need as a credit to make payments to public workers … and print what you need to lend money interest free to private land owners and entrepreneurs who put people to work.
Putting People to work for a fair and livable wage creates an abundance of goods and services to fill the marketplaces. This is true wealth.
The primary management objective is to control the volume of scrip in circulation in such a way as to avoid inflation (too much scrip) … or recession (too little scrip) … and thus it becomes a simple balancing act.
By lending scrip money interest free to private entrepreneurs on landed collateral … and then getting the principal back in regular payments … a circular flow of community credit in and out of the economy takes place. By increasing loans when business was sluggish … or reducing loans when prices were uniformly too high … the Colonies of America … under the advice of Ben Franklin … who actually designed and printed their scrip notes … enjoyed a stable economy for roughly 5 decades without the booms and busts that arose later … when the scrip system was replaced by the fractional reserve “ponzi scheme” … where all money is created as a debt plus interest rather than a credit minus interest.
It’s time to restore the American Scrip System.
Issuing currency fraudulently as a debt plus interest creates a nation of debt slaves.
Issuing currency honestly as a credit without interest creates a free society of prosperous, moral and happy citizens.
Great. This is an important conversation. Dugan King recognizes that loans at cost (interest-free) were once issued for the creation of real wealth (not financial wealth); he further maintains that Colonial Scrip was also “spent into circulation” by the Colonial Authorities—and that no booms and no busts ever occurred.
A note of caution must be added to the conversation about “spending money” into circulation. That was possible because the Colonists were eminently moral people. Leaders of today, not so much. A long conversation must be cut short, by pointing out that Hitler also spent money into circulation.
Apart from this important note of caution, yes, Concordian Monetary Policy, which has received a nod from the Fed, is a modern resurrection of the Scrip System conceived by Benjamin Franklin, practiced by the American Colonists, and endowed to the American people in Article 1, Section 8 of the United States Constitution.
Thanks, Dugan King.
Thanks FM and DK. Excellent observation and great response Dugan. I was about to contribute almost exactly the same facts. I would love to discuss a modern, next-gen digital version of the system, with further improvements for global use.
Some missing points, namely were loans in Pennsylvania pounds at interest or only the principle needed to be paid back.
Getting into further detail about how they balanced the amount of currency for required transactions, and how often they amended that, would really help in my research.
Thanks again FM and CG. Carmine’s contributions & cautions are right on. Without a concurrent, published/webcast upgrade of the socioeconomic paradigm and cultural ethos, any such system can be subverted and perverted for the sake of kleptocracy and ecocidal tyranny, which is exactly what happened, repeatedly. Now, the Soft Tyranny of the majority foreseen by Alexis de’Toqueville as a possible downfall of the USA, enabled modern mediocracy and global kleptocracy posing as plutocratic-oligarchy in not so stealthed mode.
FM, if there is no interest on issue of currency, and it’s issued in direct proportion to provision of goods/services, then there is no need for some sophisticated scheme for balancing the books/accounts. The only way to keep an economy and its currency stable is by use of a stable, fixed standard of values.
Charging interest on the use of currency is inherently destabilizes, confuses and worse, deludes and inevitably defrauds people. Which people? The losing class people are those who do not understand or have power to maintain the fixed value of their currency and the standards upon which an equitable monetary system is based.
And, yes, as long as that general understanding and commitment to general equity and commonwealth is sustained, there is no need for personal taxation, in time of war and peace. The alternative to taxation is the use of direct issuance of debt-free fiat currency as compensation to anyone providing valuable goods/services to the commonwealth. Though they were paid in coin specie, that is how members of Congress, their staff, other offiicials of the US government, its contractors and miners were paid for their contributions to the commonwealth. Making a commodity, metal, the basis of US currency was a terrible, very destructive mistake.
Confusing money and currency and both with a commodity is the necessary basis of financial subversion and perversion of a cultural economy. Naturally, the lack of a single, self-consistent, logically valid metatheory of meta-economics helps ensure the usurpation of government by cunning kleptocrats and their lackeys (i.e., mainstream economists).