Continental Congress issues Continentals
Starting in June 1775, the Continental Congress — which had no taxation authority — issued paper money called 'Continentals' to fund the Revolutionary War. By 1779, roughly $241 million in Continentals had been issued against a tax base that could not service them. The currency depreciated to roughly 1 percent of face value by 1781, giving rise to the phrase 'not worth a continental,' which entered American English as a synonym for valueless. The Continentals were formally abandoned in 1790, redeemed at 1 cent on the dollar.
The experience was foundational for the U.S. Constitution's drafters. Article I, Section 10 explicitly forbids states from emitting bills of credit or making anything but gold and silver legal tender — a direct response to the Continental experience. The federal government's implicit power to issue paper money was not exercised until the Civil War.
03 · First Paper Bubbles
The invention of paper money in Western economies (borrowed conceptually from Song Dynasty China) introduced a new debasement mechanism: issuing more paper claims on gold or silver than the issuer actually held. The first Western paper monies were issued by the Massachusetts Bay Colony in 1690. Within 30 years, John Law's Banque Royale in France had demonstrated the catastrophic potential at industrial scale. Every paper-money experiment of the 18th century — Continentals, assignats, Bank of England wartime notes — followed the same pattern: issue, over-issue, collapse.
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