Colonial Economics and the “Land Bank Schemes”

Readings:

• John Winthrop, A Model of Christian Charity (1630)
• John Cotton, “The Divine Right to Occupy the Land” (London, 1630)
• John Cotton, “On the Just Price” (1639)
• William Potter, “The Key of Wealth: Or, A New Way for Improving of Trade” (1650)
• “Severals relating to the Fund, Printed for divers Reasons…” (1681)
• Prospectus of the Land Bank Company (1739/40) (As it originally appeared in The General Magazine)
• Petition of London Merchants against the Land Bank (1741)
• Land banks [tag feed]

We’re really just going to scratch the surface with this material: a couple of representative pieces of puritan economic thought, together with another cluster of texts on “land banks.” But this ought to let us tackle some of the ideas that are most important in the realm of economics.

The word economics has roots that connect it to the household, a sense that is largely lost in a world where home economics appears to be a marginal offshoot of something more appropriate to the separate world of trade and commerce. Let’s try to maintain some of that etymological connection, and let economics be the “science” of managing our interactions and our available resources. Let’s try to keep the notion somewhat close to home. After all, most of the complicated stuff that normally associate with the term comes down, in the end, to what we have constructed to meet very basic needs: food, shelter, security, etc.

Consider for a moment the situation of the New England pioneers. They lived in a face-to-face society, with few members. They had no scarcity of natural resources, but they did have a scarcity of the sorts of social resources we use to make nature readily usable by ourselves. Take a look at 17th century maps of New England. One of the famous Plymouth colony “maps” really consists of nothing more than the names of settlers, arranged around the main street. Then look at what a small speck on the continent the New England settlements were in the early 17th century. (University of Georgia has an excellent collection of colonial maps. Click on the maps to get the resizing tool to show up.) If you’ve ever been alone in the deep woods, you can start to get a little feel for what it must have been like to live on the edge of the virgin forest, with the North Atlantic at your back. (Check out the Plymouth Colony Archive Project for more original materials.)

As the colonists prepared to come to New England, and as they began to carve out a home, some basic economic questions arose: By what rights can we claim the land on which we will live? What degree of cooperation and mutual support is called for by our circumstances? What is a “just price” in a very limited marketplace? It was not necessarily the case that practices from England could be simply transferred, nor was it necessarily the case that simple transfer would be desirable, given other social changes the colonists wished to make.

We will return to some of these questions. . .

The three items regarding “The Fund” 1681 and the “Land Bank or Manufactory Scheme” of 1740 concern a later period of colonial economics, at which point colonies and commerce had expanded a great deal. Taxes for Indian wars and government projects, as well as demands from England regarding government and economics were added to all of the transformations associated with enlarging markets, the beginnings of secularization, etc.

Once you have extended trading networks, some kind of currency is necessary. Taxes generally require the establishment of a “legal tender,” a currency recognized by the government as legitimate for paying obligations. The earliest government currencies were issued against future tax debts, and given to those who did business with the government. Work for the state now and your taxes are that much reduced. This allowed colonial governments to work on credit. Precious metals were, of course, considered the best security for a solid currency, and were themselves circulated as money. But supplies of specie (gold and/or silver) were not dependable. Metals could be sold, or sent out of the colony, reducing the security and value of the currency. European nations competed over available metals, warring really, at times, in this manner.

The land bank tradition was aimed at providing a currency adequate to ordinary trade and improvement, generally alongside some form of government currency. The largely rural population suffered from shortages of currency, thanks to fluctuations in the supply of specie and various sorts of controls on the number of bills circulating which kept economic power in the hands of those with political clout. What the partisans of the land banks proposed was another form of “monetized credit.” Land or other sorts of real property could be mortgaged to the Land Bank Company, and currency would be issued to the owners to the amount of some fraction of the appraised value. This is really a case of the members of the company extending secured credit to one another and formalizing the arrangement with bills of exchange and formal mortgage obligations. They would agree to accept the bills of all other members, or non-members using the land bank currency, for all transactions. Coin might be used for change. Legal tender dollars could be reserved for tax payment and trade outside the membership.

Land banks, sometimes called “mutual banks,” have been pursued as a source of additional currency for rural communities into the 20th century. They have seldom had a chance to operate without government interference. Some claim that the suppression of the 1740 land bank, which involved the elder Samuel Adams (father of the famous brewer/patriot) in years of litigation, was a major contributor to revolutionary feeling in some areas.