Working Paper #2011-15 – The Continental Dollar: Initial Design, Ideal Performance, and the Credibility of Congressional Commitment

Department of Economics
University of Delaware
Working Paper #2011-15

The Continental Dollar: Initial Design, Ideal Performance, and the Credibility of Congressional Commitment

Farley Grubb

ABSTRACT

An alternative history of the Continental Dollar is constructed from the original resolutions passed by Congress. The Continental Dollar was a zero-interest bearer bond, not a fiat currency. The public could redeem it at face value in specie at fixed future dates. Being a zero-interest bearer bond, discounting must be separated from depreciation. Before 1779 there was no depreciation, only discounting. In 1779 and again in 1780 Congress passed ex post facto laws which altered the redemption dates of past Continental Dollars in ways that were not fiscally credible. These laws were the turning point. Depreciation and collapse followed.

JEL Codes:E42, E52, G12, G18, H11, H56, H60, H71, H83, N11, N21, N41

Keywords:  American Revolution; war financing; debt retirement; fiat money; bearer bonds; monetary denominations; congressional spending; currency depreciation; U.S. Constitution; founding fathers; Benjamin Franklin; state tax rates.