Period of Paper Money, 1710-1751.
The history of paper money in Rhode Island has already been treated with considerable fullness.[[99]] It does not strictly fall within the scope of this monograph and will be treated only so far as to give a clear idea of the financial policy of the colony, an idea necessary to an understanding of the part played by taxation.
According to the report on the state of the treasury in 1709; the year of the attempted expedition against Canada, notwithstanding the heavy taxation, the colony found itself in debt to the amount of £3830-15s.-4d. To cover this deficit and meet the expenses of succeeding expeditions £13000 in bills of credit were issued during the years 1710 and 1711. These bills passed equal to silver at eight shillings per ounce.[[100]] By this means the colony succeeded in transferring the balance to the right side of the account.
During the years of peace which followed the peace of Utrecht annual expenses greatly diminished. Ordinary expenditure was considerably under one thousand pounds, extraordinary expenditure sometimes added as much again or even more to the account.[[101]] With the growth of population, political and economic development,[[102]] and the depreciation of the currency, these sums gradually increased so that in 1731 a report made to the Board of Trade estimates the ordinary expenditure at two thousand pounds and the extraordinary at two thousand five hundred pounds. By 1739, when the Spanish war began the total of these two sums had increased to about six thousand pounds.
Notwithstanding the diminution of expenditure the colonists at the close of the war in 1713 were loth to take up again the burden or taxation and for the next forty years the government supported itself almost entirely by means of bills of credit. The usual method of procedure was this. Bills of credit were issued and loaned at interest, for a term of years, to landholders on mortgage security to double the amount of the bills. These loans were termed "Banks." The following table shows the Banks issued before the Revolution, the number of years for which they were loaned, the rate of interest received and the value of the bills at the time of issue.
| No. of Bank. | Date. | Amount. | Years loaned. | Rate of Interest. | Value of silver in bills. |
|---|---|---|---|---|---|
| I | 1715 | £40,000 | 13 | 5 | 12s. per ounce. |
| II | 1721 | 40,000 | 13 | 5 | 16s. per ounce. |
| III | 1728 | 40,000 | 13 | 5 | 18s. per ounce. |
| IV | 1731 | 60,000 | 10 | 5 | 22s. per ounce. |
| V | 1733 | 100,000 | 10 | 5 | 25s. per ounce. |
| VI | 1738 | 100,000 | 10 | 5 | 27s. per ounce. |
| VII | 1740[[103]] | 20,000 | 10 | 4 | 6s. 9d. per ounce. |
| VIII | 1743[[104]] | 40,000 | 10 | 4 | 6s. 9d. per ounce. |
| IX | 1750 | 25,000 | 10 | 5 | 6s. 9d. per ounce. |
At the expiration of the loans interest ceased and repayment was made in ten equal annual instalments.[[105]] The amount legally outstanding in January 1740-1 was £340,000, (sterling value £88074-16s. 10-3/4d.)[[106]] the actual amount was doubtless greater, as we know that repayment was not always promptly made.[[107]] In addition to the Banks the General Assembly had from time to time made direct issues of bills of credit. Before 1739, however, these issues were principally to replace worn and torn bills and did not increase materially the circulation. According to a report made in October 1739 the amount issued up to that time (including everything but the banks) was £117,001-15s. This sum had been offset by bills burnt to the amount of £105,704-15s. 3d., leaving an increase of circulation due to these issues of £11296-19s. 9d. Under the stress of war which now began and continued for several years these issues were largely increased. According to a report prepared in February 1749/50, for transmission to the English government, there was issued from September 1740 to February 1747 £206,000. The committee sums up its report in regard to these bills as follows: "At divers times, from the year 1710, to the year 1747, the colony has emitted bills of credit to the amount of £312300, old tenor; and there hath been called in and burnt at several times from the year 1728 to 1748, £176,964, 6s. 10d.; and by the last settlement of the general treasurer's account, it appears that there was then in the public treasury, £24,891 10s. 10d. from all which it appears that there is now outstanding of the bills issued to supply the treasury, £110,444 2s. 3d.; the whole of which outstanding sum was issued in the years 1746 and 1747,and is equal to £10,040 7s. 5d. sterling."[[108]]. The amount legally outstanding in bank money was £390,000 old tenor (£210,000 nominal) sterling value £35,444, 9s. 2d. The increased issues had depreciated the paper money so rapidly that its relation to sterling was now as 11 to 1. As in 1739, the actual amount outstanding the legal amount. By the aid of remittances from England for the reimbursement of war expenditures Massachusetts succeeding in sinking her paper bills. Rhode Island with much larger proportional issues failed to follow the same course.
Douglas in 1748 estimated the total amount of bills of all kinds outstanding at £550,000 old tenor and even this seems to have been an under rather than over estimate.
In 1751 came the ninth and last bank, of a nominal value of £25,000 equal to £237000 old tenor. The issue of this bank was the last victory of the paper money party. For many years a strong opposition had been developing. As early as 1731 a protest against the issue of the fourth bank, signed by prominent citizens, had been sent to the king. Protests were also entered against the seventh and eighth banks, and in 1750 another petition against paper money issues signed by seventy two persons, representing the merchants of Newport, the commercial centre of the colony, was presented to the king. In 1751 parliament passed an act which, supported by the growing sentiment in favor of better financial methods, may be said to mark the downfall of the paper money policy. The principle provisions of the act were that, after September 29, 1751, bills of credit could be issued only with the consent of the home-government, and that provision must be made for calling them in within two years in the case of issues to meet current expenses, and in five years in the case of emergencies such as war. The time of the bills already out was not to be extended, and no bills issued or to be issued were to be made a legal tender. It seems best to anticipate for a moment and trace to its end the history of the issues already made. First, as to the bills issued to supply the treasury. Of those which had been called in and burnt previous to 1749, £88725 had been sunk by means of grants made by parliament to reimburse the colonies for the expenses incurred in King George's War. In 1751 £24280 more wore sunk in like manner. Between this date and 1785 £17368 were sunk from the proceeds of taxes leaving outstanding £93688. This sum was called in by a tax for the exact amount levied in 1769.
Provision for calling in the bank money by repayment of the loans had been made as we have seen in the acts of issue. The whole amount should have been repaid by 1767, but instead of this a report made to the general assembly in May 1770 shows that there was still outstanding £92615 old tenor value.