The Americans entered upon the fifth year of the struggle for independence with clouded prospects. They had no national government. Their representatives had adopted a pattern for one, but, as we have observed, the several States were tardy in confirming their action. The finances of the country were in a wretched condition. Bills of credit or "Continental Money" representing one hundred million dollars were then in circulation, without adequate security, for the Congress, having no power to levy taxes, had very little credit. The coin value of the paper money was then rapidly depreciating. In January, 1779, one hundred dollars in gold or silver would purchase seven hundred and forty-two dollars in bills; and from that time the depreciation was so rapid that, at the close of the year, one hundred dollars in specie would purchase twenty-six hundred in bills. While the amount of the issues was small the credit of the bills was good, and they were taken freely by the people for the space of eighteen months after the first issue in the summer of 1775; but when new and larger emissions took place, without adequate provisions for their redemption, suspicion supplanted confidence in the public mind. It was perceived that depreciation was inevitable. To prevent this disastrous tendency, the Congress, in January, 1777, when the bills had shrunk one-half in value, asked the several States to declare them a lawful tender, and denounced every person who refused to take them at par as enemies, liable to forfeit whatever he or she might offer for sale. The States complied; and they were invited to cancel their respective quotas of Continental bills, and to become creditors of the common treasury for such sums as they might thereafter advance. They were requested to call in their own bills of credit which they had put in circulation, and to issue no more; but they would not consent to these proposed financial arrangements.
In the autumn of 1776, the Congress opened loan-offices in the several States, and authorized a lottery to raise money "for defraying the expenses of the next campaign." The prizes of the lottery were made payable in loan-office certificates. But loans came in slowly, and so few lottery tickets were purchased that the scheme was finally abandoned. The treasury became almost exhausted; and by drafts from the commissioners in Europe, the loan-offices were over-drawn upon. Attempts to borrow adequate sums abroad, utterly failed. The financial embarrassments had been increased by the circulation of an immense amount of counterfeits of the Continental bills, by the British and Tories, after the spring of 1777. They were sent out of the city of New York literally by cart-loads. The business was no secret. An advertisement in a New York paper ran thus: "Persons going into other colonies may be supplied with any number of counterfeited Congress notes for the price of the paper per ream;" and they were assured that the counterfeit was so "neatly and exactly executed" that there was "no risk in getting them off."
For the want of money and credit, the campaign of 1778 was closed at the beginning of autumn, and the Congress felt the necessity of adopting some extraordinary efforts for redeeming the bills of credit. They taxed the several States; and in January, 1779, they called upon them, by a resolution, to "pay in their respective quotas of fifteen millions of dollars," for the current year, and "six millions of dollars annually, for eighteen years, from and after the year 1779, as a fund for sinking the emissions." All efforts were vain. Prices rose as the bills sunk in value, and every kind of trade was embarrassed. The Congress were sorely perplexed. Only about four million dollars had been obtained by loan from Europe, and present negotiations appeared futile. No French army was yet upon our soil; no French coin gladdened the eyes and hearts of the American soldiers, whose pay was much in arrears. A French fleet had, indeed, been upon our coast; but after mocking our hopes with broken promises of support in Rhode Island, had gone to the West Indies to fight battles for France. The Continental bills rapidly depreciated, and early in 1781, became worthless. I have before me an account rendered to Captain Allan McLane, in January, 1781, for merchandise purchased, in which appear the following items, among others: "1 pair of boots, $600; 6 yds. chintz, $150 a yard, $900; 1 skein of thread, $10."
The Congress resumed their sessions in Philadelphia, at the beginning of July, 1778, and in August they began to devote two days each week to a consideration of financial matters. In September they issued fifteen million dollars in bills of credit. Their depreciation became more rapid as the year drew to a close, and the Congress saw no other resource than in loans or subsidies from Europe. They instructed Dr. Franklin to assure the French monarch that they "hoped protection from his power and magnanimity." This humiliating step was not approved by some of the members of Congress, because they were unwilling to have their country placed under the protection of any foreign power which was likely to be the protection of the lamb by the wolf. Eight States voted for the measure. Aid was hoped for from the Netherlands, and Henry Laurens was sent to the Hague to negotiate a loan.
The estimated expenses of the government of the United States for the year 1779 was over sixty million dollars in paper money, for which no adequate provision was made. A knowledge of these financial embarrassments gave the British ministry hopes of a speedy wreck of the cause of the republicans, and Germain prepared to carry on the war with relentless rigor. The Congress abandoned the wild scheme for the conquest of Canada; and they called Washington from his headquarters at Middlebrook to confer with them about the campaign for 1779. His troops were cantoned in a line of posts of observation, extending from the Delaware, by way of the Hudson Highlands, to the Connecticut line. It was resolved by the Congress and the commander-in-chief to act on the defensive only, except in retaliatory expeditions against the Indians and Tories. This policy was pursued in the north, and the chief efforts of the Americans were directed to the confinement of the British army to the seaboard, and chastising the Indian tribes.
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