The American Revolution

By the mid-1700s, the British Empire was approaching its height of power around the world. Britain had fought four wars in Europe since the creation of its privately-owned central bank, the Bank of England. The cost had been high. To finance these wars, the British Parliament had borrowed heavily from the Bank. By the mid-1700s, the government’s debt, here in Britain, was £140,000,000 a staggering sum for those days. Consequently, the British government embarked on a program of trying to raise revenues from their American colonies in order to make the interest payments to the Bank. But in America, it was a different story. The scourge of a privately-owned central bank had not yet hit.

This is independence hall in Philadelphia where the declaration of independence and constitution were signed. In the mid-1700s, pre-Revolutionary America was still relatively poor. There was a severe shortage of precious metal coins to trade for goods, so the early colonists were forced to experiment with printing their own home-grown paper money. Some of these experiments were successful. Franklin was a big supporter of the colonies printing their own paper money.

In 1757, Franklin was sent to London. He ended up staying for the next 18 years, nearly until the start of the American Revolution. During this period, the American colonies began to issue their own money. Called Colonial Scrip, the endeavour was very successful. It provided a reliable medium of exchange and it also helped to provide a feeling of unity between the colonies. Remember, most Colonial Scrip was just paper money – debt-free money – printed in the public interest and not backed by gold or silver coin. In other words, it was a totally fiat currency. One day, officials of the Bank of England asked Franklin how he would account for the new-found prosperity of the colonies. Without hesitation he replied:

“That is simple. In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one.”
—Benjamin Franklin

This was just common sense to Franklin but you can imagine the impact it had on the Bank of England. America had learned the secret of money and that genie had to be returned to its bottle as soon as possible.

As a result, Parliament hurriedly passed the Currency Act of 1764. This prohibited colonial officials from issuing their own money and ordered them to pay all future taxes in gold or silver coins. In other words, it forced the colonies on a gold or silver standard. For those who still believe that a gold standard is the answer for America’s current monetary problems, look what happened to America after that. Writing in his autobiography, Franklin said:

“In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed.”
—Benjamin Franklin

Franklin claims that this was even the basic cause for the American Revolution. As Franklin put it in his autobiography:

“The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the PRIME reason for the Revolutionary War.”
—Benjamin Franklin’s autobiography