Short and Sweet

American colonists among the first to embrace modern monetary theory

“But there was a serious problem,” writes Stephen Mihm in a 2019 Bloomberg article. “The colonial government had no money, and failed to secure a loan. It fell to a small committee of prominent citizens to figure out what to do. The head of the committee was a man named Elisha Hutchinson. . . Hutchinson and the others devised an unusual solution to the problem. They issued what is generally recognized as the first fiat currency in the Western world. The twenty-shilling notes they printed cheekily claimed that they ‘shall be in value equal to money’ — meaning that they were equivalent to silver coin.”

Though, as Mihm explains, Massachusetts’ original paper currency introduced in 1690 functioned reasonably well in terms of holding its value, some of its successors did not do so well. Years later, a paper currency inflation during and after the American Revolutionary War gave a now-famous phrase a prominent place in the American lexicon – “not worth a Continental.” Mihm’s article refers to the period in Massachusetts around 1690 as a “crude forerunner” of Modern Monetary Theory, and it is an interesting read.


“The Congress issued six million dollars of continentals in 1775, and the issues increased each year. One hundred and forty millions were issued in 1779. As prices rose, the government found that it needed more and more dollars to finance its expenditures. More money was printed. This added supply of dollars led to further depreciation in the infamous spiral of inflation. At the outset, the continental had circulated at par with a dollar of specie. By 1780, over one hundred continental dollars were required to exchange for one specie dollar; Congress had printed continentals until they were worth almost nothing.” – Murray N. Rothbard, Faith and Freedom, (1950) as published at the Mises Institute, 12/17/2018


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