By Joshua Mawhorter, Mises Wire | February 26, 2026
This first experiment with government-issued bills of credit presents a natural historical test case for Modern Monetary Theory (MMT), particularly its claims about chartalism and the state’s role in originating money. This took place in the Massachusetts Bay Colony in 1690. Given that the US is MMT’s favorite example of a “monetary sovereign,” the first issuance of government paper money in the Western world ought to be significant.
Given the claims of MMT and the relatively recent, extant history of colonial America, there is surprisingly little MMT writing that addresses the Massachusetts case (though my research was, of course, limited). Tymoigne and Wray mentioned Massachusetts a handful of times in a paper, saying, “We now turn to the most contentious aspect of MMT. MMT argues that economies such as the Massachusetts colonies are sufficiently complex to shed light on the fiscal and monetary operations of contemporary economies with monetarily sovereign governments.” One post—from an Intro to MMT page on Facebook—called the Massachusetts Bay Colonies “A TEXTBOOK APPLICATION OF MMT.”
Economist and economist historian, David Glasner, cited Gordon Wood—an intellectual historian of the American Revolutionary era—saying the following concerning paper money in the Massachusetts Bay Colony in 1690,
Almost from the beginning of American history Americans have relied on paper money. Indeed, the Massachusetts Bay Colony in 1690 was the first government in the Western world to print paper currency in order to pay its debts. Although this paper money was not redeemable in specie, the Massachusetts government did accept it in payment for taxes. Because Americans were always severely short of gold and silver, the commercial benefits of such paper soon became obvious. Not only the thirteen British colonies, but following the Revolution the new states and the Continental Congress all came to rely on the printing of paper money to pay most of their bills.
From an MMT perspective, much could seemingly be made of the fact that the Massachusetts Bay colonial government was able to issue paper money and accept the bills for tax settlement, however, the all-important question is why these bills were limitedly accepted and whether tax receivability is a sufficient explanation for the general acceptance of the bills of credit.
From an MMT perspective, much could seemingly be made of the fact that the Massachusetts Bay colonial government was able to issue paper money and accept the bills in payment of taxes without immediate redemption. Yet the crucial question is not whether the government could declare the notes receivable, but why they were only imperfectly and conditionally accepted, and whether tax receivability alone is sufficient to explain their general purchasing power. The historical record suggests that something more than tax settlement was required to secure confidence in the bills of credit.
The Event & Context
In 1690, the Massachusetts Bay Colony issued what is widely regarded as the first government-issued paper money in the Western world. The bills of credit were introduced to pay soldiers returning from a failed expedition against Quebec, at a time when the colony lacked sufficient specie to meet its obligations. Given that these notes were not initially convertible into gold or silver, the episode is frequently cited as an early example of fiat currency and is therefore of particular relevance to debates over chartalism. If taxation alone can generate monetary value, the Massachusetts experiment should provide early historical confirmation of that claim.
Following the Quebec misadventure, and when the attempts to secure a loan of £3,000–£4,000 from Boston merchants failed, the government resolved in December 1690 to issue £7,000 in bills of credit to meet its obligations. Significantly, the notes were introduced amid public skepticism about irredeemable paper. To facilitate acceptance, the government pledged that the bills would be redeemed in gold or silver out of future tax revenues and that no further emissions would occur, but these promises were short-lived. Rothbard wrote concerning this episode,
Characteristically, however, both parts of the pledge went quickly by the board: The issue limit disappeared in a few months, and all the bills continued unredeemed for nearly 40 years. As early as February 1691, the Massachusetts government proclaimed that its issue had fallen “far short” and so it proceeded to emit £40,000 of new money to repay all of its outstanding debt, again pledging falsely that this would be the absolute final note issue.
But Massachusetts found that the increase in the supply of money, coupled with a fall in the demand for paper because of growing lack of confidence in future redemption in specie, led to a rapid depreciation of new money in relation to specie. Indeed, within a year after the initial issue, the new paper pound had depreciated on the market by 40 percent against specie.
Even in what is often described as an early fiat experiment, public acceptance was secured not by tax receivability alone but by explicit promises of specie redemption and limits on quantity. Wood, as quoted in the introduction, observes that the Massachusetts paper “was not redeemable in specie,” though it was accepted for taxes. Yet contemporary evidence indicates that the notes were introduced with explicit promises of future redemption in gold or silver and with assurances that no further emissions would occur. The public’s initial acceptance appears to have depended upon these pledges. The subsequent depreciation of the bills as emissions expanded suggests that expectations of convertibility and restraint—rather than tax receivability alone—played a decisive role in their valuation.
Was This Chartalism?
When dealing with MMT and the related chartalist claims, it is key to realize that there are different forms of chartalism, namely, chartalism proper or “C-form theory” and neo-chartalism (nC) (functional chartalism). In the former,
The central idea of the alternative view [chartalism] is that the value of money is based on the power of the issuing authority, and not by any embodied or backing precious metal. Hence, Chartalists give a central role to the state in the evolution and use of money.
In chartalism proper (“C-form theory”), money’s value is said to rest on the power of the issuing authority rather than on prior market valuation, with the evolution of money linked to the state’s ability to command resources through its taxing and spending power. In the latter, neo-chartalism (nC) is presented as a modern, post-Keynesian approach, drawing on Knapp, Innes, and Lerner, and said to generate “very different conclusions regarding the origins and functions of money,” monetary sovereignty, and prices. L. Randall Wray argues,
The nC approach begins with the recognition that no matter what might have been the case in the long distant past, the nearly universal situation today is one in which the nation state establishes the unit of account to be used within its boundaries.
Both chartalism and neo-chartalism avoid the catallactic questions of monetary theory altogether. Further, some presentations of MMT invoke chartalism not merely as a description of modern fiat regimes, but as an account of monetary origins. Yet when confronted with early historical cases of state paper emissions in already-monetized economies, the argument often shifts from origin to institutional description. This raises the question of whether chartalism is best understood as a theory of monetary origination or as a theory of monetary maintenance within an established state currency system.
Clearly, this event cannot be used to demonstrate strong chartalism or chartalism proper (“C-form theory”)—the claim that money is fundamentally a state-issued fiat-token deriving its value from tax receivability—because well-established commodity monies already circulated prior to the paper emission, including in Massachusetts. The Massachusetts bills did not create a monetary system by fiat; they entered an economy in which gold and silver already functioned as media of exchange and standards of valuation.
This case also fails to effectively demonstrate neo-chartalism (nC). The events of 1690-1692 indicate that taxation and state decree were insufficient, by themselves, to establish and maintain purchasing power independent of convertibility and redemption expectations within an already-monetized economy. Despite tax receivability, legal tender provisions, and later coercive reinforcement, the bills still depreciated relative to specie. Their initial acceptance appears to have depended less on tax settlement alone than on expectations of redemption and limits on quantity. Such features are more consistent with money-substitutes—claims to money proper—than with autonomous fiat.
A Money System, Redemption Promises, & Conditional Acceptance
The ability of the Massachusetts government to issue paper bills of credit in 1690 presupposed the existence of an already-functioning monetary system. Gold and silver circulated as media of exchange prior to the emission, and the bills were denominated and valued relative to that preexisting standard. The bills of credit were introduced into—and priced relative to—that existing system. The episode therefore cannot be cited as evidence of money originating through state decree alone.
These colonial bills of credit were accepted initially not as autonomous government fiat-tokens, but as money-substitutes—claims ultimately redeemable in specie (money proper). Rothbard, in a key phrase, noted that,
Suspecting that the public would not accept irredeemable paper, the government made a twofold pledge when it issued the notes: that it would redeem them in gold or silver out of tax revenue in a few years and that absolutely no further paper notes would be issued. (emphasis added)
The conditional nature of the public’s acceptance is revealed by subsequent events. As the government expanded the issue beyond its original pledge and redemption was delayed, confidence eroded. The bills began to depreciate relative to specie, suggesting that their initial acceptance at or near par depended not merely on taxes, but on expectations of redemption (even if not honored) and limitation of printing. When the notes came to be regarded not as money-substitutes but as irredeemable fiat subject to political discretion, their value correspondingly declined.
All that said, there are economic reasons why people would have accepted and used these bills of credit. For one, the paper bills were understood to be money-substitutes which could be redeemed in real money later, even if not right away. This could only take place in a system in which money and its value has already been established. Following that, it is true that these bills of credit could be used to pay taxes, which was also true of specie (money proper), and this might have encouraged acceptance and use. After further monetary inflation and resultant depreciation, the government tried to force acceptance through legal tender and compulsory par laws, bringing Gresham’s law into play and driving specie out of circulation. In that legal environment, people would have been incentivized to spend their bills of credit and use them to pay taxes, however, they likewise would be incentivized to hold specie.
Conclusion
While this salient episode in colonial monetary history cannot be said to definitively refute neo-chartalism, it does not comport with strong, C-form chartalist claims regarding monetary origins. The Massachusetts experiment unfolded within an already-monetized economy, and the bills of credit derived their initial acceptance not from tax receivability alone, but from expectations of redemption and limits on issue. The subsequent depreciation of the notes suggests that tax settlement—while relevant—was insufficient by itself to anchor stable purchasing power. At most, the episode indicates that governments may temporarily leverage a preexisting monetary system by issuing paper claims framed as money-substitutes. It does not demonstrate that money originates, or derives its value, solely from state decree or taxation.
Joshua Mawhorter is assistant editor of Mises.org. He was a summer fellow at the Mises Institute (2023) and a government/economics and US history teacher since 2016.
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