What type of money do we use to pay soldiers?

December 15th, 2010

Americans today are so used to having a single currency, issued by the Federal Reserve Bank, that many of us generally do not think about money, i.e. the medium of exchange. What type of money do the people use? Is it redeemable in anything? Who issues that money?

These were questions that Americans in the eighteenth and nineteenth centuries regularly dealt with. Should gold and silver serve as money? Should a central bank issue the currency? Should competing private banks issue the currency? Should the Treasury issue irredeemable greenback currency?

What we find, especially with rural Americans in the late eighteenth and early nineteenth centuries, was an immense distrust of paper money, and it shows in several of the War Department documents. Part of the reason for this distrust was the colossal disaster that was the Continental currency during the American Revolution. The Continental money, backed by neither gold nor silver, inflated drastically during the late 1770s and early 1780s, devaluing by as much as 500% from its original value at the time it was issued. This led many Americans to only desire gold and silver – hard money – as currency, for gold and silver did not fluctuate in value and offered security for anyone looking to save money. Thomas Jefferson, Thomas Hart Benton, Nathaniel Macon and Andrew Jackson are only a few of the prominent Americans who distrusted paper money and demanded hard currency in its stead. Even the Constitution, in Article I Section X, declares that the states can only make gold and silver legal tender for the payment of debts.

In a March 9, 1792 letter from Major Isaac Craig in Pittsburgh to the Paymaster General Joseph Howell, Craig informed the War Department Office that the people of western Pennsylvania “are not yet reconciled to bank notes” and prefer to use “hard money” for various trades and dealings. Therefore Craig requested that the War Office send specie – i.e. gold or silver – to his location occasionally for those on the War Department payroll.

Others in the War Department also reported that the citizens and the soldiers receiving pay, preferred specie over bank notes. Major General “Mad” Anthony Wayne wrote a letter to Secretary of War Henry Knox on June 11, 1794, informing him that the Mounted Volunteers of Kentucky did not want to accept paper money in payment and demanded gold and silver. Officer James O’Hara also wrote a letter to Knox on May 17, 1794, requesting that the War Office substitute specie for bank notes when settling accounts in western Pennsylvania.

All Politics is Local

December 6th, 2010

France of course had been an important ally of the United States during the War for Independence. But in 1794, following the French Revolution and the fall of the French monarchy, the United States and Great Britain agreed to the terms of the Jay Treaty which, though villified by critics as appeasing the British, resolved most of the contentious issues that existed between the two former antagonists. Outraged by American neutrality in the ongoing conflict between Britain and France, French warships began seizing American ships trading with Britain and thus began the so-called Quasi-War between the United States and France. The tensions between the United States and its former ally also had an impact on American politics with the Federalists favoring accord with the British while the Anti-Federalists sided with revolutionary France. The turmoil in internal political affairs continued after the retirement of George Washington and intensified during the administration of President John Adams as the United States began to bolster its army and navy in preparation for armed conflict with France. In a letter from Secretary of War James McHenry to Secretary of State Timothy Pickering, dated 10/20/1798, McHenry discusses both the Quasi-War and its political impact. He believes that the “unanimity excercised by the people” and the resolve of Congress to “strengthen the country by fleets and armies” may have convinced France that the United States would not be intimidated and might influence French leaders to adopt a more conciliatory posture toward the Americans. Still McHenry wonders why ‘unanimity” does not translate more directly into votes for Federalist candidates. He asks why the people “have not returned to Congress a greater majority of federal characters,” a situation which he views as “not very flattering.”  He provides a two-part answer to his own question. First, he observes that those seeking power tend to be “the most industrious laborers in the political vineyard” compared to those who already possess power and may tend to be complacent. Secondly, he notes that voters who do support the federal government are “apt to differ in their opinions about the man they wish to be chosen.” Elections are not an accurate measure of public opinion because “it is local subjects in these cases which overrule all others.” In other words, even though voters might support national goals, in a Congressional election their votes will be determined by candidates’ positions on local issues. Or in the immortal words of the late Speaker of the House, Thomas P. “Tip” O’Neill, “All politics is local.”