Credit in Early America

The discovery of the New World provided new opportunities for the growth of capitalism and the expansion of credit. The first recorded use of open credit in early America took place with the establishment of the first permanent colony in New England. In September 1620, the Mayflower set sail from England for Virginia. Because of bad weather and navigational errors, the Pilgrims ended up off the coast of Cape Cod and eventually established the village of Plymouth in Massachusetts. While the journey itself was a tremendous achievement, so was its financing.

The Pilgrims had spent three years of arduous negotiations in England attempting to raise the funds necessary for the trip. A wealthy London merchant financed the trip and provided for "all credit advanced and to be advanced." In return, the Pilgrims contracted to work for a period of seven years. At the end of that period, payment would be made to the creditors based on the size of the individual investment.

The original credit of £1,800 could not be paid at the end of seven years, so an alternative arrangement was agreed upon: £200 to be paid annually for a term of nine years. This arrangement had to be renegotiated and finally, after 25 years, the last payment was made. This was the first example of credit in early America.

To finance the American Revolution, the Second Continental Congress made efforts to finance the Army of the United Colonies. The Congress had only three alternatives: borrow the money from sympathetic countries abroad which was an impossible task since the Colonist's credit in the world stood at zero; impose taxes which was unpopular and the very cause that had brought about the American Revolution; or issue bills of credit.

In June, 1775, the Continental Congress authorized the printing of $2,000,000 in various denominations ranging from one dollar to eight dollars. Trouble for the Continental currency began almost at once; each note had to be hand signed which was not a simple task considering 49,000 of them had to be signed. Counterfeiting of the currency was rampant. The principle behind the Continental currency was, in essence, a promise to pay the final bearer, at some point in the future, the face value in Spanish coins, the coins in widest circulation at this time.