The Practice and Politics of Fiat Finance: North Carolina in the Confederation, 1783-1789

By James R. Morrill | Go to book overview
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II. The Domestic Debt

The unfavorable balance of trade during the postwar years was a phenomenon that had afflicted North Carolina throughout its history. The enduring scarcity of specie had been serious before the Revolution, but the shortage had become critical as the state had struggled to finance the war effort. Without specie resources or substantial military assistance from the United States government, North Carolina had been compelled to resort to deficit financing and thus had incurred a large domestic debt consisting of two basic components: paper currency issued as legal tender upon the faith and credit of the state; and certificates of various types that the state pledged itself to redeem with money. During the postwar period the redemption of the debt was, predictably, a matter of important public and private concern.

The wartime resort to paper currency had been a natural and familiar course of action, for upon numerous occasions during the colonial period the scarcity of money had prompted the North Carolina government to emit fiat currency.1 The war currencies, declared legal tender in the payment of all public and private debts but devoid of any support except the faith and credit of the state, had boldly proclaimed that the government would redeem the paper with specie. The specie redemption pledge had been no more than legal fiction designed to bolster the currency's market value, for, as everyone had fully realized, the government had no foreseeable prospect of redeeming the currency with gold or silver. Although North Carolinians had no alternative but to reconcile

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1.
The most detailed coverage of North Carolina colonial emissions is that found in Charles Jesse Bullock, Essays on the Monetary History of the United States ( New York: Macmillan Company, 1900).

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