Economists and historians have been telling us the wrong story about Continental currency for two centuries. Continental money did not lose its value because Congress printed too much of it. In fact, there was less of it in circulation when its value plummeted than there had been before. Most surprising of all, Continental dollars weren’t technically “money” at all. They were bonds, and they worked just fine until Congress blew it in 1779.
Farley Grubb, an economics professor at the University of Delaware, used the pandemic to complete his quest to set the record straight on Continental currency. “For 230 years,” he writes, “traditional historiography has told us that the Continental dollar was a fiat currency — an unbacked paper money.” We have been told, “Congress printed and spent an excessive number of these paper dollars from 1775 through 1780,” driving their value almost to nothing and producing the phrase, “Not worth a Continental.” The old story is appealing in its simplicity, he concedes, but also requires us to believe the Founding Fathers were “either crazy, deceptive, ignorant, evil, or stupid.” Moreover, the old story falls apart under close examination (page 6-7).
Grubb’s book, The Continental Dollar: How the American Revolution Was Financed with Paper Money, is an interesting and valuable contribution to our understanding the Revolutionary War. It is an academic work that includes mathematical formulas that will make many readers’ eyes glaze over, but the vast majority of it is easily understood. It should be required reading for any author tempted to repeat the timeworn accusation that the states and Congress refused to give the Continental Army the support it needed. At least when it came to financing, Congress bled itself dry and pushed the states beyond the limit of what they could possibly do.
There were no banks in colonial America, primarily because of British restrictions on chartering corporations. Since there were no banks, there were no banknotes either. Paper currency did not represent claims on deposits. In Virginia, this reviewer happens to know, paper currency was backed by the value of tobacco in warehouses. Real money (specie) was made of precious metal, and hard to come by in the colonies. Consequently, most commerce was based on barter or credit.