Massachusetts Bay issues the first Western paper money
In December 1690, the Massachusetts Bay Colony issued paper notes — called 'bills of credit' — to pay soldiers returning from a failed expedition to capture Quebec. The colony had no specie to pay the troops and no way to levy taxes fast enough. The notes promised to be accepted for future tax payments. Within a few years, Massachusetts had issued more notes than its tax base could absorb. By 1750, the Massachusetts paper pound traded at roughly one-tenth of its original promised value. The pattern — issue notes to cover a war, over-issue them, watch them depreciate — would repeat in every paper-money experiment for the next century.
Other American colonies adopted the same mechanism within 30 years. Pennsylvania, Virginia, and the Carolinas all issued colonial paper, and all of them depreciated. Parliament passed the Currency Act in 1751 (for New England) and 1764 (for all colonies) banning further issues — one of the grievances that fed into the Revolution.
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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