A History of Money and Banking in the United States: The Colonial Era to World War II by Murray N. Rothbard

understandably took little time for these certificates, federal and state, to depreciate in value to nothing; by the end of the war, federal certificate issues alone totaled $200 million.
    The one redeeming feature of this monetary calamity was that the federal and state governments at least allowed these paper issues to sink into worthlessness without insisting that taxpayers shoulder another grave burden by being forced to redeem these issues specie at par, or even to redeem them at all.16 Continentals 16As one historian explained, “Currency and certificates were the
    ‘common debt’ of the Revolution, most of which at war’s end had been sunk at its depreciated value. Public opinion . . . tended to grade claims against the government according to their real validity. Paper money had A History of Money and Banking in the United States 61
    Before the Twentieth Century
    were not redeemed at all, and state paper was only redeemed at depreciating rates, some at the greatly depreciated market value.17 By the end of the war, all the wartime state paper had been withdrawn from circulation.
    Unfortunately, the same policy was not applied to another important device that Congress turned to after its Continental paper had become almost worthless in 1779: loan certificates.
    Technically, loan certificates were public debt, but they were scarcely genuine loans. They were simply notes issued by the government to pay for supplies and accepted by the merchants because the government would not pay anything else. Hence, the loan certificates became a form of currency, and rapidly depreciated. As early as the end of 1779, they had depreciated to 24-to-1 in specie. By the end of the war, $600 million of loan certificates had been issued. Some of the later loan certificate issues were liquidated at a depreciated rate, but the bulk remained after the war to become the substantial core of the permanent, peacetime federal debt.
    The mass of federal and state debt could have depreciated and passed out of existence by the end of the war, but the process was stopped and reversed by Robert Morris, wealthy Philadelphia merchant and virtual economic and financial czar of the Continental Congress in the last years of the war. Morris, leader of the nationalist forces in American politics, moved to make the depreciated federal debt ultimately redeemable in par and also agitated for federal assumption of the various state debts. The reason for this was twofold: (a) to confer a vast subsidy on speculators who had purchased the public debt at highly depreciated values, by paying interest and principal at the least status.” E. James Ferguson, The Power of the Purse: A History of American Public Finance, 1776–1790 (Chapel Hill: University of North Carolina Press, 1961), p. 68.
    17In Virginia and Georgia, the state paper was redeemed at the highly depreciated market rate of 1,000-to-1 in specie.

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    A History of Money and Banking in the United States: The Colonial Era to World War II
    par in specie;18 and (b) to build up agitation for taxing power in the Congress, which the Articles of Confederation refused to allow to the federal government. The decentralist policy of the states’ raising taxes or issuing new paper money to pay off the pro rata federal debt as well as their own was thwarted by the adoption of the Constitution, which brought about the victory of the nationalist program, led by Morris’s youthful disciple and former aide, Alexander Hamilton.
    THE BANK OF NORTH AMERICA
    Robert Morris’s nationalist vision was not confined to a strong central government, the power of the federal government to tax, and a massive public debt fastened permanently upon the taxpayers. Shortly after he assumed total economic power in Congress in the spring of 1781, Morris introduced a bill to create the first commercial bank, as well as the first central bank, in the history of the new Republic. This bank, headed by Morris himself, the Bank of North