"Easy Money
By Dror Goldberg
Chicago, 346 pages, $55
The year 1692 is infamous in Massachusetts history. It was then that, in Salem, hundreds of women -- and men too -- were accused of witchcraft, and 20 were tried and executed for an imaginary crime. In the same year, another momentous event took place in the colony, though it has nothing of the same notoriety: The Puritan leadership that had overseen the Salem Witch Trials -- responding to some of the same social pressures that had fueled the witch craze -- perfected a financial instrument that would prove to be the template for modern currency. In brief, they reimaginedmoney primarily as legal tender for taxes, a conceptual revolution that makes the government's authority the only source of a currency's value. This is the basis of the monetary system that prevails throughout the world today under the reign of the Almighty Dollar.
Dror Goldberg's "Easy Money" provides an engrossing narrative account of this lesser-known crucible. Although scholarship about the first American colonies could fill the Mayflower, Mr. Goldberg's chronicle is the first book-length attempt to explain why a defining concept in our global financial system emerged within a desperate theocracy on the fringes of the British Empire.
Unlike Virginia and other early colonies in the New World, Massachusetts was led not by aristocratic adventurers but by the upwardly mobile middle classes of English society. And, as Mr. Goldberg points out, the colony was founded at precisely the moment when England was beginning the leap from an agricultural to a capitalist economy. Devout religious motives led the Puritans to Massachusetts, but financial ingenuity allowed their pious enterprise to survive and thrive.
Lacking the institutional structures that reinforced social order in the Old World, Massachusetts's leaders relied on consensus and consent. Though the ministerial elite tolerated no dissent in its religious mission, on practical matters, such as raising revenue and spending it, the colonial government was the most democratically accountable in the world at the time. For good reason, Alexis de Tocqueville identified the colonial New England township as the seedbed of American democracy.
But the early success of the colony met with several sharp reversals later in the 17th century. The restoration of the Stuart Monarchy in 1660 was one setback, as Charles II was understandably hostile to the Puritan sect that had tried and executed his father. Wars with Native Americans also took a toll. As a percentage of the population, King Philip's War in 1675-78 -- setting the colonists against the Wampanoags and other nearby Native American tribes -- was the deadliest in American history.
By 1690, Massachusetts owed a massive debt to its soldiers after a failed expedition to capture Quebec from the French. Internal discontent and renewed oversight from the mother country put the colony's leadership in a double bind. It was not powerful enough to flout the interests of its own citizens, but it also couldn't afford to disobey imperial dictates when it tried to meet local challenges.
Charles II had forbidden the colony from resuming its earlier practice of minting its own coins from valuable metals, a prerogative the crown reserved to itself. And in revoking the colony's original charter in 1664, Charles II made all its land titles uncertain, upending the commodity that the colonists most often used as the basis for credit. Banks, then as now, made loans in exchange for mortgaged assets, primarily land. Banknotes backed by such assets circulated as money in the colony, including as payment for taxes. Legal uncertainty as to the validity of land titles stuck at the foundation of this system. Meanwhile, any hard currency that flowed into the colony immediately flowed out again to pay trade debts. So there was no hope of the colonial government raising capital by borrowing it -- the method England itself began to revolutionize with the founding of the Bank of England in 1694.
The legal-tender law of 1690 -- the centerpiece of Mr. Goldberg's study -- met all these challenges at once. It converted the debt the colony owed to its soldiers into "small, conveniently denominated, standardized, easily transferable, stamped pieces," he writes. Other governments had attempted to solve their fiscal problems by printing paper and trying to force everyone else to accept it as money, with disastrous consequences. Massachusetts was the first to give paper currency genuine value by requiring only that the government accept its notes as payment for taxes. Since the colonial government could force its citizens to pay taxes, its willingness to accept its own notes made everyone else willing to accept them, too. Two years later, after risk of a veto from the king had diminished, the colony expanded the legal-tender act to make its notes lawful payment for both taxes and debts. With that additional change, Massachusetts's notes became, Mr. Goldberg says, "nearly identical to the currency of the early twenty-first century."
The colonists, Mr. Goldberg argues, had brought about a conceptual shift. The foundation of the monetary system had moved "from tangible assets (coin, goods, land) to monetary obligations involving the state." Massachusetts recognized that the power to tax -- though intangible -- is an economic asset that can be monetized like any other. (This insight, Mr. Goldberg observes, also shows why government-issued currencies are unlikely to be replaced by bitcoin so long as governments maintain the authority to tax their citizens.)
But this triumph, which Mr. Goldberg describes as "one of the many beginnings of the intellectual movement that created the modern world," proved stillborn within a generation. Centuries intervened before Massachusetts's innovation began to go global. The U.S. Constitution authorizes Congress to coin money, not to print it. The same document forbids the states from making "any Thing but gold and silver Coin a Tender in Payment of Debts."
The Puritans in 1692 were careful to print no more notes than were to be collected as taxes. This required "a superb level of discipline," Mr. Goldberg writes, "one that could be expected perhaps only of . . . Puritans." But even they were not immune to the intoxicating power of their invention. The liberating effects of the original legal-tender laws quickly gave way to the scourge of inflation. And the effects were not confined to the economy. Legislative meddling with the relationship between creditors and debtors, as James Madison later wrote, would strike at the foundation of a free society, destroying "confidence between man and man."
Mr. Goldberg, a professor at the Open University of Israel, might have paid more attention to the intellectual history of the early Puritans. Scholars at least since Max Weber's "The Protestant Ethic and the Spirit of Capitalism" have debated the striking yet elusive connection between the intense religiosity of the Puritans and their economic dynamism. His account adds a fascinating layer to this mystery without addressing it. Nowhere, for example, does Mr. Goldberg attempt to explain why the first great experiment with modern money coincided with the last great witch craze in colonial North America.
But one lesson that comes across in Mr. Goldberg's estimable book would have struck the Puritans themselves. The figure the Puritans referred to as "that old deluder, Satan," has many ways of preying upon the minds of men. The modern word for credit comes from the Latin word credere, meaning "to believe." Massachusetts showed how a government can create money out of its own credibility as a tax collector. But that same capacity allows governments to disguise -- temporarily -- the inescapable fact that they must ultimately collect in taxes the same amount they spend, creating a tempting delusion we moderns still cannot resist.
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Mr. Rowe is a historian in Dallas." [1]
1. REVIEW --- Spring Books: The Other Puritan Revolution
Rowe, Adam. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 01 Apr 2023: C.6.
