The Growing Pains of New Money, Part 5: Not Worth a Continental

Every new form of money in history has gone through growing pains: counterfeits, broken promises, lost value, and hard-won fixes. This series tells those stories from the primary sources, because the pattern is easier to see from a distance, and because knowing the pattern is the best preparation for living through it.

America’s founding generation did not learn about the growing pains of new money from books. They were paid in them.

Paper goes to war

In 1775, the Continental Congress faced the oldest fiscal problem, a war to fund and no treasury to fund it, and reached for the newest solution. It printed money. The notes made a clean and confident promise. The one-third dollar bill pictured above declares that “This Bill entitles the Bearer to receive” its value in Spanish milled dollars, the trusted silver coin of the age, “or the Value thereof in Gold or Silver.” The paper was a claim on real silver. There was just no silver behind it.

Congress printed roughly $240 million over six years, the states printed more, and the British counterfeited still more as a weapon of war. The result was the most famous depreciation in American history. By 1781 the notes traded at a fraction of a percent of face value, and a new phrase had entered the American language: not worth a Continental.

Two founders watch the money die

The primary sources here are unusually vivid, because the men running the war wrote constantly about the money failing around them. George Washington put the problem in one line in an April 1779 letter to John Jay: “a wagon load of money will scarcely purchase a wagon load of provisions.”

Benjamin Franklin, characteristically, found the silver lining. Depreciation, he saw, had worked as a silent tax on everyone who held the notes. “This Currency, as we manage it, is a wonderful Machine,” he wrote to Samuel Cooper that same month. “It performs its Office when we issue it; it pays and clothes Troops, and provides Victuals and Ammunition; and when we are obliged to issue a Quantity excessive, it pays itself off by Depreciation.” Franklin’s wit should not soften the point. The tax fell hardest on soldiers paid in the notes, and farmers required to accept them. When new money dies, its believers pay the bill.

The men who later wrote the Constitution carried this experience into the room. The document’s careful language about coining money and its silence on paper emissions were not abstractions. They were scar tissue.

Eight thousand kinds of dollar

The scar shaped the next 80 years. With the federal government wary of paper, note issuing fell to state chartered banks, and by the 1850s an estimated 8,000 varieties of banknote circulated, issued by banks of wildly uneven honesty. The worst, the so-called wildcat banks, placed their redemption offices where, as the saying went, only wildcats lived.

An entire publishing industry arose so that merchants could tell good paper from bad. Thompson’s Bank Note Reporter and rivals like Bicknell’s Counterfeit Detector and Bank Note List told readers, week by week, which banks were sound, which notes traded at a discount, and which were forgeries. Pause on what that means. For a generation, American money came with required reading. Every purchase involved an appraisal. Economists call the cost of checking your own money a verification cost, and mid-century America paid it daily, at every shop counter.

The fix arrived in the 1860s, driven by another war: a national banking system, a uniform national currency, and, in 1865, a new federal agency called the Secret Service, created not to guard presidents but to hunt counterfeiters.

The pattern so far

The Continental failed the old way, by over-issue. The wildcat era failed a subtler way, by non-uniformity, money whose value depended on who issued it and how far you stood from the vault. Here is the remarkable part: paper money in America died, publicly and completely, and then came back. The same country that swore off paper after 1781 was running the world’s reserve currency on it within two centuries. A new money’s early failures tell you where its institutions are missing, not whether it has a future. One growing pain remained unfixed, the oldest and most dramatic of all. The run. The final post is about the disaster that finally forced the cure.

Works cited

Bicknell’s Counterfeit Detector and Bank Note List. Philadelphia, various issues, 1830s to 1850s.

Continental Currency one-third dollar note, February 17, 1776. Text as printed on surviving examples.

Franklin, Benjamin. Letter to Samuel Cooper, April 22, 1779. The Papers of Benjamin Franklin, Yale University Press.

Journals of the Continental Congress, 1774 to 1789. Library of Congress edition. Records of emissions of bills of credit.

Thompson’s Bank Note Reporter. New York, various issues, 1842 onward.

Washington, George. Letter to John Jay, April 23, 1779. The Papers of George Washington, University of Virginia Press.