|Wampum Belt given Wm Penn in 1682|
Isaac B. Werner lived on the prairie for several years without incurring indebtedness. He swapped labor with neighbors and grew crops for his own consumption, as well as selling and bartering his produce. However, he needed a horse of his own in order to be able to break enough sod to plant sufficient acreage in crops to prosper as a farmer. He borrowed money for the first time to buy his horse Dolly (See "Isaac's Dolly Varden," 12-28-2012 in the blog archives), with extra cash to buy implements. Thereafter, cash received and paid became the controlling issues of his life, finding sufficient cash to pay interest on his notes but rarely having anything to apply to repayment of principle.
Because of their relationship with Great Britain, the colonies designated their money using British terms--pounds, shillings, pence; however, the value assigned to those terms varied from one colony to another.
Apart from the traditional measures of exchange, there was also the use of commodities, not only crops like tobacco and skins such as beaver pelts but also wampum. The image above depicts the belt of Wampum given to William Penn by the Indians. Wampum beads were made of various things, but the rarity of the material contributed to the determination of value. Often sea shells were the material used, found even in the wampum of inland tribes and obviously of greater value than such things as bones and seeds available in their region.
Colonial bills of credit were not backed by gold or silver. Rather, they were simply promises to pay, and when colonial governments had nothing with which to pay their debts the bills lost value or became worthless.
During the Revolutionary War, the colonies were expected to help pay for the costs of the army, but most regarded the allocated amount as a "request" rather than an obligation and did not submit full or even partial payments. The colonial government borrowed money that they had little or no way to repay, offering small likelihood of repayment of the bills of credit they printed. They turned to the wealthy Robert Morris of Philadelphia, who used his own money to help resolve the indebtedness of the fledgling nation. He is a hero of the Revolutionary period that few Americans know anything about. (See "More Money Comments," 7-23-2015 to view a bill with the image of Robert Morris.)
Then, as now, counterfeiting was a security issue, and the British further weakened the Continental government's credit by counterfeiting their bills in massive quantities. Morris also paid the counterfeited bills if presented to him for payment, as leaving them in circulation weakened the Continental government just as much as if they were authentic.
After the US Constitution was ratified, a coinage system was established with the passage of the "Mint Act" in 1792. Paper money was not issued until 1861, but silver certificates and Treasury notes were issued prior to that time,
Between 1793 and 1861 private banks could be granted state charters which allowed them to print and circulate their own money, and approximately 1,600 banks did so. It is estimated that 7,000 varieties of "state bank notes" were put into circulation.
From 1863 to 1929 the federal government allowed private banks to print National bank notes on paper authorized by the US government, and although thousands of banks issued these notes, the same basic design was used by all of the banks. The image of the National Bank Note at right was printed by the First National Bank of Emporia, KS.
In 1913 the Federal Reserve System was established and Federal Reserve Bank notes were issued, and for a time both the national bank notes and the Federal Reserve bank notes were issued. Today, only Federal Reserve currency is produced.
Once Isaac B. Werner went into debt to buy Dolly, more loans followed in the 1880s and early 1890s. The money was quickly spent on machinery, seed, horses, and interest. In fact, Isaac was only able to pay interest most of the time, renewing his notes at ever increasing interest rates. This was the period during which private banks could print "national bank notes." Isaac did most of his banking in St. John, but it is uncertain exactly what currency he received from the banks when his loans were funded.