Is paper money sound policy, and should the government issue it?

1. WHAT HE SAID (the record)

Record ledger

• BELIEF (1729-03-27): Benjamin Franklin believed that issuing paper money at a low interest rate was sound policy because it would make money plentiful, lower interest rates, and benefit trade. He argued that the government could do so securely by using land titles as backing and that there was no good reason not to issue it at four percent interest. "I cannot see any good reason why four per cent to the loan-office should not be thought fully sufficient." [1]
• BELIEF (undated): Benjamin Franklin believed that making money plentiful can lower interest rates, which is advantageous to a country. He argues that the scarcity of money leads to higher interest rates due to increased uncertainty and difficulty in making payments, and therefore, making money plentiful is beneficial. (key quote above) [2]
• BELIEF (undated): Benjamin Franklin believes that a plentiful currency (paper money) has both advantages and disadvantages, and that different groups have conflicting interests regarding its issuance. He argues that those who benefit from high interest rates or land speculation may oppose issuing more paper money, while a plentiful currency can lower interest and encourage trade. "Thus we have seen some of the many heavy disadvantages a country ... must labor under when it has not a sufficient stock of running cash to manage its trade currently." [3]
• BELIEF (1757-02-22): Benjamin Franklin believed that issuing paper money and bills of credit was sound policy, as it had been applied with prudent frugality to the honor and advantage of the public and the King's immediate service, preserving the government's credit and punctually discharging public debts. He argued that the Assembly's management of these funds had produced great and many advantages. "the Assemblies of this province have had the power of disposing of the public moneys... applied with prudent frugality to the honor and advantage of the public and the King's immediate service... In short, no inconveniences, but great and many advantages, have accrued from the Assembly's prudent care and management of these funds." [4]
• BELIEF (1764-02-09): Benjamin Franklin believed that paper money could be a sound policy for the colonies, arguing that it served as a practical medium of trade and that its use was not inherently harmful. He compared it to bank bills used in Britain, which also had no intrinsic value but were accepted based on credit. "Bank bills and bankers' notes are daily used here as a medium of trade, and in large dealings perhaps the greater part is transacted by their means; and yet they have no intrinsic value, but rest on the credit of those that issue them, as paper bills in the colonies do on the credit of the respective governments there." [5]
• BELIEF (1764-02-09): Benjamin Franklin believed that paper money could be sound policy depending on the circumstances of the colony. He argued that in New England, the restriction on paper money had not been inconvenient due to their valuable fisheries and other means of maintaining currency, but that such a policy might be very inconvenient for other colonies with different circumstances. "When colonies are so different in their circumstances, a regulation, that is not inconvenient to one or a few, may be very much so to the rest." [6]
• BELIEF (1767-06-13): Benjamin Franklin believed that colonies would not make money if the interest from paper money was controlled by Parliament, and that allowing Assemblies to appropriate the interest themselves was necessary for the policy to be effective. He argued that a plentiful currency would benefit commerce in America. [7]
• BELIEF (1767-08-08): Benjamin Franklin believes that paper money can be kept in full credit if the quantity is small, and he is not in favor of applying for a repeal of the restraining act soon, fearing an ill use will be made of it. He suggests alternative methods to support its credit, such as petitions from merchants and traders or establishing a bank. "I am glad you have made a trial of paper money, not a legal tender. The quantity being small may perhaps be kept in full credit notwithstanding; and if that can be avoided, I am not for applying here again very soon for a repeal of the restraining act." [8]
• BELIEF (1768-02-17): Benjamin Franklin believed that the legal tender of paper money was beneficial to the people and argued in favor of it. He also noted that Lord Hillsborough read his arguments with attention and acknowledged that more had been said in favor of such a currency than he thought could be said, though he did not change his opinion significantly. "all the arguments he used, against the legal tender of paper money, were intended to demonstrate, that it was for the benefit of the people themselves to have no such money current among them" [9]
• BELIEF (1779-04-22): Benjamin Franklin believed that paper money, when managed properly, can perform its office by paying and clothing troops and providing for war needs, and that its depreciation can act as an imperceptible tax to reduce public debt. He acknowledged the depreciation as an issue but argued it is a result of excessive issuance and can be remedied by reducing the quantity through taxation. "This currency, as we manage it, is a wonderful machine. It performs its office when we issue it; it pays and clothes the troops, and provides victuals and ammunition; and when we are obliged to issue a quantity excessive, it pays itself off by depreciation." [10]

What cuts against it

• ACTION (1781-11-26): The editor notes that the total abolition of paper money has put the government in a position where it cannot make significant financial exertions without an immediate supply of money. This suggests that the editor considers the abolition of paper money to have had negative consequences. [11]

• BELIEF (1788-02-17): Benjamin Franklin considered the making of paper money with a legal sanction a folly, as citizens could set their own prices, defeating the sanction. "The making of paper money with such a sanction is, however, a folly, since, although you may by law oblige a citizen to take it for his goods, you cannot fix his prices; and his liberty of rating them as he pleases, which is the same thing as settling what value he pleases on your money, defeats your sanction." [12]

2. HOW IT APPLIES (reasoning; inference is marked)

1. Benjamin Franklin believed that paper money could serve as a practical medium of trade, especially in colonies, and that its use was not inherently harmful. [5]

2. He argued that a plentiful currency could lower interest rates and encourage trade, which was advantageous to a country. [2]

3. Franklin acknowledged that excessive issuance of paper money could lead to depreciation, but he believed this could be managed through taxation and prudent policy. [10]

4. He also noted that different colonies had different circumstances, and what worked in one might not work in another, suggesting that a one-size-fits-all approach to paper money was not always sound. [6]

5. However, he expressed concerns about the potential for misuse and the need for careful management, indicating that paper money required thoughtful implementation to be effective. [8]

3. HIS TAKE

Record coverage: PARTIAL

The record is silent on whether Benjamin Franklin would support the issuance of paper money in the modern context, particularly in relation to contemporary economic systems and global trade. However, based on his historical writings, it is reasonable to infer that he would support the issuance of paper money under certain conditions, such as when it is necessary to support trade and manage public debt, and when it is issued in moderation and with a clear plan for redemption.

Extrapolation: Franklin would likely support the issuance of paper money as a tool to stimulate trade and manage public debt, but he would emphasize the importance of careful management to avoid excessive depreciation and economic instability.

Competing readings: Some may argue that Franklin's later writings suggest a more cautious approach to paper money, particularly in light of its potential for misuse and depreciation. However, the record itself does not state this as a definitive shift in his position, and it remains an inference.

Confidence: Moderate. The record provides a clear foundation for his views on the benefits and risks of paper money, but it does not address the modern context directly.