Massachusetts 1690-1691: The Plundering State and the Birth of Paper Money in the West

Massachusetts [in 1690] was accustomed to engaging in periodic plunder expeditions against prosperous French Quebec.  The successful plunderers would then return to Boston and sell their loot, paying off the soldiers with the booty thus amassed.  This time, however, the expedition was beaten back decisively, and the soldiers returned to Boston in ill humor, grumbling for their pay.  Discontented soldiers are liable to become unruly, and so the Massachusetts government looked around for a way to pay them off. --Murray N. Rothbard, The Mystery of Banking

Murray Rothbard, in the introductory quote, is describing one of the earliest attempts in the Western world to abandon metallic money and consequently to adopt government-issued paper money instead.  What makes Rothbard's discussion of Massachusetts history relevant for modern day discussions of political economy is this:  he links a plundering state to the issuance of irredeemable paper money.  

What I personally found interesting in Rothbard's discussion of 1690 Massachusetts [technically speaking he covers a period from December 1690 to February 1691; that is how long the government of Massachusetts kept its promises to the people regarding the new paper money issue] is the language Rothbard used.  He mentions that Massachusetts became accustomed to engaging in plundering expeditions in order to pay off the soldiers with the booty amassed.  


The idea of running a plundering state in order to continually "pay off" soldiers smacks of feudalism or absolutism.  Hans-Hermann Hoppe in his Theory of Socialism and Capitalism, describes the operations of a feudal state, with its total disregard for property rights and with its total reliance on state coercion, as follows:

Hence, the practice, based on these alleged ownership rights, of renting land and other production factors out to the natural owners in return for goods and services unilaterally fixed by the overlord, had to be enforced against the will of these natural owners, by brutal force and armed violence, with the help of a noble caste of military men who were rewarded by the overlord for their services by being allowed to participate and share in his exploitative methods and proceeds.  (84)

Notice further that the soldiers have become accustomed to the plundering expeditions.  This is in keeping with 16th century political philosophy; in fact, this is one of the primary goals of a tyrant.  The great 16th century political philosopher Etienne de la Boetie mentions in his discourse that "custom becomes the first reason for voluntary servitude" (23).  In other words, people get accustomed to a very bad habit, namely, robbing and plundering their neighbors.

What Rothbard describes in Massachusetts is a situation in which the plundering operation did not work. The soldiers became restless because they didn't get their share of the booty.  In other words, the soldiers who were accustomed to getting bought off by the state were now upset because their habit of living off booty has been interrupted.  So what does the government of Massachusetts do?  According to Rothbard's account, it first tries to borrow money from some Boston merchants, but the merchants refuse to do so.  So, the government resorts to issuing paper money.  To do so, the government makes a number of promises, which it does not keep.  The government of Massachusetts promises that this note issue will be the one and only issue; moreover, the government promises to make the notes redeemable in gold and silver.  Neither promise is kept!

The important observation, I think, is this. The government of Massachusetts is operating in a rather feudal manner by continually buying off soldiers with the proceeds of organized plundering raids.  The raids fail.  The habit of living off plundered booty has come to an end.  When the government was no longer able to bribe soldiers with plundered goods from Quebec, it resorted to the issuance of irredeemable paper money.  Consequently, paper money started as a way to continue the larcenous nature of the state.  Before the issuance of the irredeemable paper money, the state openly and overtly was engaged in a plunder operation.  Because of the problems created by the failure of the Quebec plundering expedition, the government of Massachusetts simply made the plundering operation covert and secretive.  This is because irredeemable paper money is also a method of plundering one group in order to benefit another group.  The only difference is that this new method has a built-in "stealth" component to it.  Fundamentally, nothing has changed.  The government of Massachusetts engaged in larceny before the issuance of paper money and continued to engage in larceny after the issuance of paper money.  The victims may have changed, but the underlying process of robbing some people in order to pay off soldiers has not changed.

The other important point to stress is the fact that the government of Massachusetts made promises and then promptly broke them.  Not only did the government issue more notes but also the government failed to keep its redemption promise.  According to Rothbard, "the bills continued unredeemed for nearly 40 years."  The promise of "one and only one" new issue was quickly broken 2 months after the promise had been made.

What troubles me is the fact that nobody seems to have learned the lessons of history.  Here we are in 1690 and early 1691 with broken promises followed by more broken promises with regard to government and the issue of paper money.  We see that the purpose of paper money is to bribe a group of larcenous soldiers.  So why then in 2011 do we keep repeating the same mistakes of 1690 Massachusetts?  Have we not learned the lesson that paper money benefits the government and its plundering soldiers at the expense of many victims?