More than half of the first paper money issued by the colony of Maryland flowed into the economy as a social dividend, equivalent to a gift to each inhabitant over 15 years of age. Historically, the major sources of paper money have been banks that issued it on the strength of promissory notes, and governments that issued it to finance government expenditures. Often governments have issued paper money during wartime when demands upon government spending are particularly heavy. Maryland’s first experiment with paper money was unique for that era because its colonial government issued paper money solely for the purpose of stimulating the private economy, without feeling pressure to finance a portion of the public sector’s budget.
Like other American colonies Maryland struggled against a shortage of currency that kept the colonial economy on a tight leash, limiting trade to what could be transacted with a limited money supply. England made no special provision to supply the colonies with coins and currency, and the colonies had to get by with what could be earned from trade with the rest of the world. To infuse additional coin into the local economy, the Maryland legislature in 1729 granted a 15 percent reduction in import and export duties if they were paid with imported gold or silver.
Maryland shared with Virginia an almost exclusive dependence upon tobacco, either to pay for foreign trade or as the principal medium of exchange in the local economy. In the eighteenth century, however, tobacco production outpaced demand and the price of tobacco on the world market steadily declined, accounting for the depression in Maryland’s economy. Maryland’s first proposal for issuing paper money was part of a scheme for limiting tobacco production in an effort to raise the price of tobacco. In 1731 the Maryland legislature enacted a law that provided for the issuance of 30,000 English pounds of paper money to pay for tobacco that would be taken out of production. For each 6,000 tobacco plants standing during the month of July, the owner was to burn and destroy 150 pounds of tobacco. In return for each 150 pounds of tobacco destroyed the owner received from the colonial government 15 shillings in paper currency. For some reason this plan was never implemented and the paper money never issued.
The Currency Law of 1733 provided for the social dividend money issue. It authorized the issuance of 90,000 English pounds, 48,000 of which were to be distributed as a “bounty of thirty shillings per taxable.” That included all citizens over 15 years of age excepting ministers of the Church of England, imported male servants, and slaves. The government issued the remaining 42,000 pounds as loans paying 4 percent interest and secured by real estate appraised at twice the value of the loans. The government levied a tax of 1 shilling and 3 pence per hogshead of tobacco exported from Maryland. The proceeds of this tax paid for investment in Bank of England stock, creating a fund for redeeming the paper money, beginning at the end of 15 years. Within 30 years the government planned to retire all the paper money.
The paper money issue helped finance an economic expansion in Maryland. The paper money depreciated in value moderately until 1748 when the government retired the first 30,000 English pounds. After 1748 the value of the paper money stabilized. The colonial government redeemed in shillings the entire issue of the paper money at face value, making Maryland’s paper money experience the most successful in the American colonies.
Brock, Leslie V. 1975. The Currency of the American Colonies, 1700–1764.
Lester, Richard A. 1939. Monetary Experiments.