The Evils of Paper Cash: Roger Sherman and A Caveat In opposition to Injustice
You are being ripped off.
When it comes to fiat paper “money,” Richard Sherman didn’t hold back. He saw it as an unjust and totally immoral weapon that turns government into a legalized protection racket for fraud.
He made that case in his incredibly important, but almost completely unknown pamphlet A Caveat Against Injustice, where he called for criminal punishment for the perpetrators.
CRUSHING PAPER
Start with the Constitution itself, Article I, Section 10.
“No state shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.”
The man most responsible for this clause was Roger Sherman, with an assist from James Wilson. The record of the debates at the Philadelphia Convention show exactly what they were intending.
“Mr. WILSON & Mr. SHERMAN moved to insert after the words ’coin money’ the words ‘nor emit bills of credit, nor make anything but gold & silver coin a tender in payment of debts’ making these prohibitions absolute, instead of making the measures allowable (as in the XIII art:) with the consent of the Legislature of the U.S.”
After one objection from Nathaniel Gorham, Sherman made his goal clear: put an end to paper money.
“Mr. SHERMAN thought this a favorable crisis for crushing paper money. If the consent of the Legislature could authorise emissions of it, the friends of paper money, would make every exertion to get into the Legislature in order to licence it.”
INTRINSIC VALUE
Sherman didn’t come up with this out of nowhere. He learned about the dangers of paper money in person; watched it play out in real time. In 1752 he published A Caveat Against Injustice, one of the first major American tracts in support of hard money, gold and silver.
“For Money ought to be something of certain Value, it being that whereby other Things are to be valued.”
He argued that paper cash, which they called “bills of credit,” had no intrinsic value, like hard money. The subtitle for his essay took aim at this right at the start.
“An Inquiry in the Evils of a Fluctuating Medium of Exchange.”
Ron Michener at the Economic History Association wrote that these bills of credit were the precursor to the fiat paper money of today, something with no backing.
“For the most part, bills of credit were fiat money.”
Even worse, it wasn’t often that the law required government to allow people to redeem them for real money, gold or silver. It was optional, and up to the government agent.
“Although a colony’s treasurer would often consent to exchange these bills for other forms of cash in the treasury, there was rarely a provision in the law stating that holders of bills of credit had a legally binding claim on the government for a fixed sum in specie, and treasurers were sometimes unable to accommodate people who wished to exchange money.”
For Sherman, it was the fluctuating value of paper that made it totally immoral, even if it had been used as money for a long time.
“If what is us’d as a Medium of Exchange is fluctuating in its Value it is no better than unjust Weights and Measures, both which are condemn’d by the Laws of GOD and Man, and therefore the longest and most universal Custom could never make the Use of such a Medium either lawful or reasonable.”
Because of this, he saw it as illegitimate for any government to require people to accept fiat as money.
“Such Bills of Credit are of no intrinsick Value, and their Extriniscal Value is fluctuating and very uncertain, and therefore it would be unjust that any Person should be obliged to receive them in Payment as Money in this Colony.”
GOVERNMENT PROBLEMS
This wasn’t just theory. It was actively happening.
For some background, Bob Ruppert at the Journal of the American Revolution explained why bills of credit were circulating widely at the time – there was a shortage of gold and silver.
“During the first half of the eighteenth century, there was a limited amount of specie or ‘hard money’ in the American colonies.”
What a surprise – the whole problem was caused by government. And as Mike Maharrey wrote, it started with the British system of mercantilism.
“One of the key principles of mercantilism was maintaining a positive balance of trade with more exports than imports. To this end, the government aggressively intervened in the economy by levying high tariffs, restricting trade with various countries, granting monopolies, and subsidizing favored industries.”
Murray Rothbard described mercantilism as a tool to build up imperial state power. The historical record bears that out. Historian Thomas Ladenburg documented exactly how it worked against the colonies: the British treated them as a gold and silver ATM..
“Since each nation’s wealth in those days was measured in the amounts of gold and silver it possessed, England had yet another reason for establishing and ruling a vast colonial empire: the colonists would supply their British masters with gold and silver simply by selling their raw materials and buying England’s manufactured products.”
When factoring in trade restrictions, the colonists were trapped in a cycle that drained them of their hard money. Ladenburg described just how it played out in practice.
“The difference between what the colonists would pay through their sale of raw materials, and what they owed because of the purchase of manufactured goods, is called the balance of trade. Since the colonists bought more than they sold, their balance of trade was said to be unfavorable. The difference would have to be made up in such precious metals as gold and silver.”
Making things worse – it was against British law to export English coin. As a result, wrote economist Owen Humpage, the colonists suffered from a constant outflow of gold and silver, resulting in a shortage of coin to pay for goods.
“The mercantile policies of England kept the American colonies perpetually short of specie, the various silver and gold coins that served as money across the globe. Whatever specie the colonies acquired through their trade with the Caribbean and southern Europe was lost when they imported finished goods from England.”
Not everyone was opposed to paper money. Lewis Timothy, writing in South Carolina in 1732, summed up the view of those colonists who were in favor of bills of credit just so they could do business.
“Now I shall endeavor to shew, that by the Nature of our Trade, this Currency cannot be Silver or gold. For supposing we now had a sufficient Quantity of Gold and Silver for a Medium of Trade, our Trade is such, that the British Ships always do or can bring in more in Value of the British Commodities, than their Ships will carry back in our Produce.”
Timothy saw the drain playing out in real time. While he didn’t identify the root cause – the British mercantile system was working exactly as designed.
“Now this Overplus, or the Ballance of the Account, the Trader, when his Ship is loaded with our Produce, he will carry away in our Money, this would soon drain us of all our Money, unless we had Mines, or some Trade, the Returns whereof, in Silver, would be answerable to the Ballance of our Trade with England, which we have not.”
DEPRECIATION
As a result, there was a fiat paper money crisis, especially in the New England colonies of Rhode Island and New Hampshire. They were printing without restraint, and as Ruppert explained, the more paper you print, the less it is worth.
“Each colony printed different amounts. When too many were issued or they were retired slowly while new were already being issued, their value depreciated.”
Writing under the pseudonym “Phileunomos,” meaning “lover of good law,” Sherman saw the problems with the money printer as well. We call it inflation today – they called it depreciation, pointing to the source of the problem.
“Those Governments having issued much largers sums of Bills than were necessary to supply themselves with a competent Medium of Exchange, and not having supplied their Treasuries with any Fund for the maintaining the Credit of such Bills; they have therefore been continually depreciating and growing less in their Value.”
When it came to money printing, Rhode Island was likely the worst offender. Sherman documented the rapid deterioration of purchasing power, with price inflation more than doubling over eight years – because the value of the money had depreciated by half.
“For in the year 1743, it appears by the Face of the Bills then emitted that Twenty-seven Shillings Old-Tenor was equal to one Ounce of Silver. And by an Act of their General Assembly pass’d in March last, they stated Fifty-four Shilling Old-Tenor Bills equal to one Ounce of Silver, which sunk their Value one half. And by another Act in June last, (viz. 1751) they stated Sixty-four Shillings in their Old-Tenor Bills equal to one Ounce of Silver.”
It did not stop there. As Sherman pointed out, the depreciation was accelerating and Rhode Island knew it.
“And by another Act in August last they gave Order and Direction to the Courts in the Colony to make Allowance to the Creditors in making up Judgement from Time to Time as the Bills shall depreciate for the Future, which shews that they expect their Bills of Credit to depreciate for the Future.”
STATE-SANCTIONED FRAUD
While Sherman was primarily attacking paper from the New England colonies, the principle holds for all fiat.
“No Government has Right to impose on its Subjects any foreign Currency to be received in Payments as Money which is not of intrinsick Value.”
The reason? Hard money is moral money. Fiat is not.
“And this I would lay down as a Principle that can’t be denied that a Debtor ought not to pay any Debts with less Value than was contracted for, without the Consent or against the Will of the Creditor.”
Sherman also took on the famous debasement of gold and silver from both ancient Rome and 17th century England.
“Now suppose that Gold or Silver Coines that pass current in Payments at a certain Rate by Tale should have a considerable Part of their Weight filed or clipp’d off will any reasonable Man judge that they ought to pass for the same Value as those of full Weight?”
He answered his own question: debased gold and silver is still better than any fiat paper because 90% of gold or silver is still gold or silver, and 100% of paper is still worthless paper.
“But the State of Rhode Island Bills of Credit is much worse than that of Coins that are clipp’d, because what is left of those Coins is of intrinsick Value.”
So what does that make legal tender laws that require payment in fiat? A legalized ripoff.
“Because in so doing they would oblige Men to part with their Estates for that which is worth nothing in it self and which they don’t know will ever procure him any Thing.”
On top of it all, Sherman identified the great danger is that fiat money is based on trust in government, and that trust can evaporate – fast.
“And since the Value of The Bills of Credit depend wholly on the Rate at which they are stated and on the Credit of the Government by whom they are emitted and that being the only Reason and Foundation upon which they obtained their first Currency and by which the same has been upheld ever since their first being current and therefore when the Publick Faith and Credit of such Government is violated, then the Reason upon which such Bill obtained their Currency ceases and there remains no Reason why they should be any longer current.”
But wait, there’s more! The entire fiat paper money system turns the government into a protection racket for fraudsters.
“And instead of having our Properties defended and secured to us by the Protection of the Government under which we live; we should be always exposed to have them taken from us by Fraud.”
Ultimately, Sherman’s final charge landed on the people themselves. As long as the people trade their real goods for worthless paper, they’re also participants in the fraud.
“But so long as we part with our most valuable Commodities for such Bills of Credit as are no Profit; but rather a Cheat, Vexation and Snare to us, and become a Medium whereby we are continually cheating and wronging one another in our Dealings and Commerce.”
A MORAL VERDICT
But Sherman didn’t just diagnose the disease. He also knew people would ask the essential question: what do we do about it?
“And now I have gone through with what I first proposed, But perhaps some, may be ready to say, that we are sensible that it is of bad Consequence to have a fluctuating Medium of Exchange, but what can we do to Remedy it?”
Sherman understood the root cause: the outflow of gold and silver. So his remedy was more domestic production to counteract it.
“Whereas if these Things were reformed, the Provisions and other Commodities which we might have to export yearly, and which other Governments are dependent upon for us, would procure us Gold and Silver abundantly sufficient for a Medium of Trade. And we might be as independent, flourishing and happy a Colony as any in the British Dominions.”
When it’s all said and done, it’s obvious why Roger Sherman wanted to crush paper money. He considered it a fraud that should be punished as a crime.
“I believe that every honest Man of Common Sense, upon mature Consideration of the Circumstances of the Case, will think that this is an Iniquity not to be countenanced, but rather to be punished by the Judges.”
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