Credit and the Advent of Paper Money in Colonial Pennsylvania

Mara Caden

The boundary between money and credit became increasingly fragile in the eighteenth century. In the early 1720s, the colony of Pennsylvania suffered a severe shortage of coin, brought on by a combination of the province’s position as a net importer of goods and the recent collapse of the South Sea Bubble. In response, the province issued its first paper money in 1723. Pennsylvania was the first British colony to create a permanent circulating paper currency, but in discussions about the initial paper money emission, most referred to it as paper credit. The notes were issued by a General Loan Office and were backed by land values—in essence, they were a type of mortgage. Increasingly, Pennsylvanians began to refer to these notes as paper money. This terminological change highlights a wider transition in Britain and its colonies from the treatment of money as a concrete and intrinsically valued commodity to money as an abstract instrument of exchange. Pennsylvania’s paper currency engendered deep divisions in Pennsylvania society and with governing bodies in Britain—divisions that were often over the meaning and function of money and credit. Were the notes that Pennsylvania’s General Loan Office issued a form of credit or a form of currency? Notions of inflation and intrinsic value intertwined with notions of trust and creditworthiness in the debates over the proper use and quantity of paper credit. This paper explores those divisions to explain why Pennsylvania’s paper money was so limited. Despite the high popular enthusiasm for paper money and the dire need for an alternative to coin, the problem of trust limited the scope of Pennsylvania’s paper currency.