Late in the 17th century, Elisha Hutchinson made a startling announcement: Soldiers fighting King William’s War in French Quebec would be paid in paper money, not metal coin like the Pine Tree Shilling or the Spanish Milled coins then in use.
It had never been done before, not in the western world. (The Tang Dynasty in China had tried it in the 7th century.) No one knew if the experiment would work, or if the soldiers would accept paper instead of coin. But the government of the Massachusetts Bay Colony had no choice. It didn’t have enough coin in its treasury to pay the troops, who were on the verge of mutiny.
The expedition to Quebec, said Hutchinson, ‘hath run us into debt.’
Paper money wasn’t a new idea in New England. Hutchinson had been part of a scheme a few years previously to form a bank and issue paper money to Massachusetts’ aristocrats. He was a member of the Committee of Finance and part of the colony’s ruling oligarchy. Capt. John Blackwell had come up with the idea for paper money and enlisted Hutchinson and other members of the ruling class: Gov. Joseph Dudley, William Stoughton, Wait Winthrop, Simon Lynde and Elisha Cooke. The idea went for naught.
But on Feb. 3, 1689/90, the Legislature of the Massachusetts Bay Colony issued 40,000 pounds worth of paper money, or bills of credit. The government promised the notes could later be redeemed for coins.
Each note read:
This indented Bill of […] Shillings due from the Massachusetts Colony to the Possessor shall be in value equal to money and shall be accordingly accepted by the Treasurer and Receiver Subordinates to him in all Public payments and for any stock at any time in the Treasury – New England, February the third, 1690. By order of the General Court.
The experiment worked, and the notes were soon in general circulation. By 1714, Massachusetts had issued 240,000 pounds of paper money. By 1718, the other New England colonies had picked up on the idea. The battle against inflation had begun.