Roger Sherman: “A Caveat against Injustice”

Explanation and Analysis of the Document

In modern life, Americans accept paper currency as a medium of exchange. A ten-dollar bill issued by the national treasury has equal value in all the states and can be used uniformly throughout the country to purchase goods and services. The currency situation in the first half of the eighteenth century was more complicated. Each of the colonies, including Connecticut, functioned in many respects as a sovereign “nation,” although before the Revolutionary War, the British Crown exercised considerable control over matters of monetary policy, trade, and taxation. The chief medium of exchange with a stable value was the British pound sterling, which was based on the value of silver. All paper money was backed by an equivalent amount of silver in the British treasury.

Further complicating the situation in the colonies, however, was that “money” often existed in the form of credit. As the American economy grew in the early decades of the century, more and more people were engaged in trade of one form or another. In New England, for example, rather than exchanging money, many people exchanged goods and labor. Thus, a person might provide labor on a neighboring farm, and the farmer would “pay” that person not with money but with a promise of so many bushels of wheat. On a larger scale, when merchants exported and imported goods, both to other colonies and to Britain, they were paid by “bills of credit”—which were essentially promissory notes. These bills of credit often functioned as a kind of currency. The holder of such a note might sign it over to another person to pay a debt, and that person might use it to buy shoes.

Nevertheless, from time to time, colonies printed and issued paper currency. By law, the value of this currency was fixed, pegged to a certain number of pounds, shillings, and pence supplied by the Crown. The bills themselves had no intrinsic value, unlike, say, silver coins, which have value not just as coins but for the metal they are made of. In times of war, for example, colonies found it necessary to issue paper currency to pay militias and meet other expenses. An ongoing problem was that the value of a bill issued by one colony might not be equal to the value of a bill of the same denomination issued by another colony. The value of such bills depended in large part on how many of them were in circulation. This principle is widely accepted in modern economics. The U.S. Treasury controls the amount of money in circulation, knowing that increasing the supply of money without an equivalent increase in the supply of labor and goods only devalues the currency. Two classes of people are put at distinct disadvantage when the currency loses value: those on fixed incomes, since the value of what money they do have drops; and creditors, because the value of the debts owed to them decreases.

These are the problems that Sherman addresses in “A Caveat against Injustice.” In the opening three paragraphs, he summarizes the problem. Other colonies issued bills of credit that became a medium of exchange, but in Sherman's view they failed to maintain funds in the form of silver (and gold) that would ensure the value of these bills. Still, the bills were often used to settle debts in Sherman's home state of Connecticut. Because the bills fluctuated in value—and had no intrinsic value—no one could say what they are really worth. And because that fluctuation was usually in a downward direction, Connecticut creditors, along with “Widows and Orphans,” lost money when the value of bills from other colonies declined.

In the section “The Case Stated,” Sherman develops an example of the injustice created by an unstable medium of exchange. He imagines a Connecticut merchant selling goods to a customer at a certain price. The merchant extends credit to the buyer, obligating the buyer to pay within a certain time but without specifying what form of currency he will accept. The merchant, of course, wants to be paid with a form of currency that reflects the current value of the goods; if he is paid with currency from a neighboring colony, and if that currency has since been devalued, the merchant loses by the transaction. The debtor, on the other hand, argues that the bills he is using to pay the debt have long been accepted as a medium of exchange. Although no law explicitly obligated the merchant to accept these bills, common law had established that they could be used to settle debts and judgments and that therefore the merchant should accept them. The result is a legal dispute over payment.

In the opening paragraphs of “The Case Stated,” Sherman refers to “old tenor” money. This expression designates earlier issues of currency that were backed by specie (that is, silver, gold, or sometimes copper) at a fixed rate. (At the time, the issuance, or printing, of bills was called an “emission,” and the government was said to “emit” bills.) The problems of dealing with “old tenor” versus more recently “emitted” money can be illustrated by the situation in neighboring Massachusetts. Dating back to the late seventeenth century, the paper bills of Massachusetts were fixed in value at a rate of 6 shillings per Spanish American silver dollar. But over time, as more and more bills were put into circulation, their value fell, so that by 1739 it took 22 shillings and 6 pence to buy one Spanish dollar. The situation continued to worsen. Despite efforts in Massachusetts to stabilize its currency, by 1742 it took 24 shillings and 9 pence to buy a Spanish silver dollar; by 1749 the exchange rate was up to 45 shillings.

Sherman notes a similar problem in Rhode Island. In 1743 old tenor currency was pegged at a value of 27 shillings to one ounce of silver; but in 1751 the value was changed to 54 shillings and then later to 64 shillings. In subsequent paragraphs, Sherman goes on to illustrate the problem. He notes that if bills are issued in another colony and if those bills have no intrinsic value, then their value comes entirely from the faith and credit of the colony. But if the other colony changes the value of bills, there is no reason that people in Connecticut should be obligated to accept them.

Continuing the argument, Sherman makes the parallel case of “clipped” coins. Historically, a problem governments faced was that people would file small amounts of precious metal off the edges of coins; it is for this reason that most coins of such metal are minted with small parallel ridges along the edge, so that any attempt to file off the metal is readily apparent. Sherman argues that devalued bills from neighboring colonies are like clipped coins, although clipped coins at least retain most of their intrinsic value. Bills, on the other hand, can be devalued by a colony's legislature to the point of worthlessness because the paper they are printed on has no intrinsic value.

Sherman's tone then becomes sharper. He argues that obligating the people of Connecticut to accept devalued bills from neighboring states is equivalent to taking away “Men's Estates and wrong[ing] them of their just and righteous Dues without either Law or Reason.” He goes on to characterize this as a species of “fraud,” “iniquity,” and a “Cheat, Vexation and Snare to us.” He offers calculations to demonstrate just how much value is lost to Connecticut by its acceptance of Rhode Island bills. Next, he raises the question of what the people of Connecticut should use instead as a medium of exchange. In answer he notes that “we in this Colony are seated on a very “fruitful Soil,” ”whose products can “procure us all the Necessaries of Life and as good a Medium of Exchange as any People in the World have or can desire.” He concludes by urging the General Assembly of Connecticut to take action “to prevent the Bills last emitted by Rhode-Island Colony from obtaining a Currency among us.”