"Not worth a Continental": America's first paper money and how it died

The phrase

“Not worth a Continental” was still in American mouths in the 20th century, long after anyone had seen one. It means worthless, and it comes from the paper dollars the Continental Congress printed to pay for the Revolution: bills near par in 1776 and effectively dead by 1781. The idiom outlived the money by two centuries. The pattern is older than either of them, and the Continental follows the one laid out in what currency debasement is almost step for step.

1775: a war with no tax base

The Continental Congress that met in Philadelphia in 1775 had an army to feed and no power to tax. Taxing was the states’ business, and the states were not keen. What Congress could do was print. On June 22, 1775, it voted to issue $2 million in bills of credit. These were paper promises, denominated in Spanish milled dollars, that the states would one day redeem in coin through taxes each was to levy on its own people.

The one emission became 11. By the end of 1779 Congress had authorized $241,552,780 of Continental currency, roughly $241.6 million, and the states issued paper of their own on top of it. Nobody had a plan for redeeming a sum like that, because nobody had planned on it. Each emission was the emergency in front of them.

On paper the bills were backed by a promise of future specie, and the promise was backed by a Congress that could not make a single state pay up. Farley Grubb of the University of Delaware has argued that the early bills were, in design, closer to zero-interest bonds with redemption dates than to money. Whatever the design, the public used them as money and priced them as money, and the price fell.

The slide

The Philadelphia price record (Anne Bezanson’s series, reprinted in most histories) gives the staircase in paper dollars per one dollar of silver:

• January 1777. 1.25 paper to 1 silver, after most of 1776 near par.

• January 1778. 4 to 1.

• January 1779. 8 to 1, and 30 to 1 by that October.

• January 1780. Roughly 40 to 1 (42.5 in Philadelphia).

• January 1781. 100 to 1, then 167.5 by April. The series stops there, because trade in Continentals had stopped.

Washington, trying to feed an army through the spring of 1779, wrote to John Jay, then president of Congress, on April 23:

The depreciation of it is got to so alarming a point, that a waggon load of money will scarcely purchase a waggon load of provision.

On March 18, 1780, Congress faced the arithmetic. It declared the old bills worth one-fortieth of face, ordered them called in through state taxes at 40 to 1, and authorized a much smaller “new tenor” issue, bearing interest, to replace them. A currency that had been quoted at 40 to 1 was now officially 40 to 1, which told everyone holding it what to expect from the rest of it. The old bills went past 100 to 1 within a year and then out of use. Under Hamilton’s funding plan of 1790 they were finally accepted for the new federal debt at 100 to 1, a penny on the dollar.

The usual second act

Every debasement has one. The issuer, having made the money worse, punishes people for noticing. In January 1776 Congress resolved that anyone refusing Continental bills should be treated as an enemy of his country, and the states followed with legal-tender laws that forced creditors to take paper for debts contracted in coin. Then came price controls. Delegates from the four New England states met at Providence in the winter of 1776 to 1777 and fixed maximum prices for labor, wheat, rum, wool and most else. Congress endorsed the idea in February 1777 and recommended it to the other states.

The controls worked the way controls work. Farmers who could not get a price for wheat in Continentals kept the wheat, or sold it for hard money to the British. Committees hunted “monopolizers” and “engrossers.” In Philadelphia in October 1779 a crowd marched on the house of James Wilson, a lawyer who had defended accused profiteers, and men died in the shooting at what the city still calls “Fort Wilson.” The goods did not come back. The shortage came from $241 million of paper chasing the goods of a small country at war, not from hoarders, and no committee could vote that away.

Counterfeiting as a weapon

The British saw what the paper was doing and helped it along. From 1776, HMS Phoenix, a 44-gun frigate anchored off New York, carried a press that turned out counterfeit Continentals, which were carried ashore and spent. By April 1777 the loyalist newspapers in occupied New York were running an advertisement that was not even coy about it:

Persons going into other Colonies may be supplied with any Number of counterfeited Congress-Notes, for the Price of the Paper per Ream.

It was, as far as anyone knows, the first time a government tried to win a war by debasing the other side’s money. Congress was doing the same work faster with genuine bills, so the British press did not decide anything. What it did was make the paper harder to trust, and trust was all the paper had.

What the founders wrote down

The men at Philadelphia in 1787 had lived through all of this as officers, merchants, creditors and debtors. When the draft constitution came before them with a clause allowing Congress to “emit bills on the credit of the United States,” Gouverneur Morris moved on August 16 to strike the words out. Madison’s notes record George Read of Delaware saying the words, if kept, would be as alarming as the mark of the Beast in Revelation, and John Langdon of New Hampshire that he would rather reject the whole plan than keep those three words. The motion carried, nine states to two.

The states got an explicit ban. Article I, Section 10 says that no state shall “coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.” The federal government got no such sentence. The convention struck the power rather than forbidding it, and that silence would matter in 1862, but nobody in the room was in doubt about what they meant. Five years later Hamilton’s Mint and the Coinage Act of 1792 defined the dollar as 371.25 grains of pure silver, or 24.75 grains of pure gold, and not as a promise from anybody.

The through-line

The Continental set the question every American paper dollar since has had to answer, which is what stands behind it. For the 1792 dollar the answer was metal in the coin. The greenback of 1862 was a promise, kept in 1879. After 1933, and again after 1971, the Federal Reserve note gave a different answer, and each of those is its own story. The 1787 answer came from men who had held the Continental and watched it go to nothing.

The counter’s footnote

Nothing that comes across our counter in Madison Heights is a Continental. The survivors are in museums and collections, priced as paper history rather than as money. What does come across is what the founders reached for instead, a coin whose value is its weight, tested and weighed in front of you. The government-mint coins whose weight is the promise are the direct descendants of that sentence in Article I, Section 10, and that is how the counter handles them.