In 1685, the colonial authorities in New France found themselves short of funds. A military expedition against the Iroquois, allies of the English, had gone badly, and tax revenues were down owing to the curtailment of the beaver trade because of the war and illegal trading with the English. Typically, when short of funds, the government simply delayed paying merchants for their purchases until a fresh supply of specie arrived from France.
But the payment of soldiers could not be postponed. Having exhausted other financing avenues and unwilling to borrow from merchants at the terms offered, Jacques de Meulles, Intendant of Justice, Police, and Finance came up with an ingenious solution—the temporary issuance of paper money, printed on playing cards. Card money was purely a financial expedient. It was not until later that its role as a medium of exchange was recognized.
The first issue of card money occurred on 8 June 1685 and was redeemed three months later. In a letter dated 24 September 1685, to the French Minister of the Marine justifying his action, de Meulles wrote,
I have found myself this year in great straits with regard to the subsistence of the soldiers. You did not provide for funds, my Lord, until January last. I have, notwithstanding, kept them in provisions until September, which makes eight full months. I have drawn upon my own funds and from those of my friends, all I have been able to get, but at last finding them without means to render me further assistance, and not knowing to what Saint to say my vows, money being extremely scarce, having distributed considerable sums on every side for the pay of the soldiers, it occurred to me to issue, instead of money, notes on cards, which I have cut in quarters . . .
I have issued an ordinance by which I have obliged all the inhabitants to receive this money in payments,and to give it circulation, at the same time pledging myself, in my own name, to redeem the said notes.
These cards were readily accepted by merchants and the general public and circulated freely at face value. Card money was next issued in February 1686. The authorities in France were not pleased, however. In a letter to de Meulles dated 20 May 1686, they wrote,
He [His Majesty] strongly disapproved of the expedient which he [de Meulles] has employed of circulating card notes, instead of money, that being extremely dangerous, nothing being easier to counterfeit than this sort of money. Letter to de Meulles, 20 May 1686.
Notwithstanding this admonition, the colonial authorities reissued card money in 1690 because of another revenue shortfall. Again, the cards were redeemed in full. However, given their wide acceptance as money, a significant proportion was not submitted for redemption and remained in circulation, allowing the government to increase its expenditures. The following year, with yet another issue of card money, the Governor, Louis de Buade, Comte de Frontenac, acknowledged the useful role that card money played as a circulating medium of exchange in addition to being a financing tool.
While the authorities in France worried about the risk of counterfeiting and a loss of budgetary control, the colonial authorities successfully argued that the cards served as money in Canada just as coin did in France. Moreover, the Kingdom of France derived benefits from the circulation of cards, since the King was not obliged to send coins to Canada risking loss "either from the sea or from enemies.” Reflecting the mercantilist sentiments of the time, they less cogently argued that if coins were to circulate in Canada, some would be used to buy supplies from New England, resulting in "considerable injury to France by the loss of its coinage and the advantage which it would produce among her enemies.”
(French Regime, playing card money, 50 livres, 1714 (reproduction) Playing cards inscribed with a value and signed by the governor of New France were Canada’s first paper currency and circulated from 1685 to 1714. No genuine examples are known to exist.)
The concerns of the authorities in France were not entirely misplaced. In the early 1690s, the first signs of inflation began to be noticed as a result of the excessive issuance of card money. Although cards continued to be redeemed in full upon presentation, the stock of card money increased over time faster than demand, causing prices to rise. With the finances of the French government progressively deteriorating during the first part of the eighteenth century, owing to European wars, financial support for its Canadian colonies was reduced. The colonial authorities in Canada consequently relied increasingly on card money to pay their expenses. In 1717, with inflation rising sharply, it was agreed that card money should be redeemed with a 50 per cent discount and withdrawn permanently from circulation. At this time, Canada also adopted the monnoye de France.
(French Regime, 9 deniers, 1722H In another effort to meet the need for small change, the Compagnie des Indes authorized the production of 9-denier pieces, dated 1721 and 1722. These were struck at two mints: Rouen, designated by the mint mark "B” below the date, and Larochelle, indicated here by the letter "H.” )
By failing to provide a replacement for card money, the unintended consequence of this monetary reform was recession. In an attempt to remedy the situation, copper coins were introduced in 1722, but they were not well received by merchants. Notes issued by private individuals based on their own credit standing also circulated as money, a practice that pre-dated this event, and continued periodically well into the nineteenth century and, arguably, even to the present day. The government, again short of funds, also issued promissory notes called ordonnances, which began tocirculate as money.
(French Regime, card money, 24 livres, 1729
Printed on playing card stock, the size and shape differed according to the denomination. This piece is signed by Governor Beauharnois, Intendant Hocquart, and Varin, the agent for the Controller of the Marine.)
In March 1729, in response to requests from the public, the government received permission from the King to reintroduce card money. These cards would be redeemed each year for goods or for bills of exchange11 drawn on funds appropriated for the support of the colony that would be payable in cash in France. The cards, which were strictly limited, were legal tender for all payments and replaced the ordonnances in circulation.
Confidence in this new card money was initially high. With the supply limited and convertible into bills of exchange payable in France, the cards were an economical alternative to the transfer of specie across the Atlantic. Gold and silver began to accumulate in New France and stayed. The government, however, remained financially constrained and began to rely again on ordonnances and another form of Treasury notes called acquits to fund its operations.
With issuance tightly controlled, card money traded at a premium for a time as the government increased its issuance of Treasury notes to pay for its operations. But as French finances deteriorated and the redemption of Treasury notes was repeatedly postponed, trust in card money was also undermined.
(French Regime, ordonnance, 48 livres, 1753
Although there was a limit on the number of cards that could be issued, no such restriction existed for notes called ordonnances, issued by the Treasury in Quebec City. As a result, they were overissued, which contributed to a distrust of paper currency.)
By the early 1750s, the distinction between card money and Treasury notes had largely disappeared, and by 1757, the government had discontinued payments in specie; all payments were made in paper. In an application of Gresham’s Law—bad money drives out good—gold and silver were hoarded and seldom, if ever, used in transactions.
(French Regime, bill of exchange, 1,464 livres, 1759 Issued by colonial officials at Quebec to pay the expenses of the colony, bills of exchange drawn on Paris were also endorsed and exchanged as a rudimentary form of paper money in New France.)
A rapid increase in the amount of paper in circulation during the late 1750s resulting from the mounting costs of the war with the British, declining tax revenues, and rampant corruption, led to rapid inflation.
In a letter dated 12 April 1759, the Marquis de Montcalm noted that
provisions absolutely necessary to life, cost eight times more than when the troops arrived in 1755. . . . The colonist is astounded to see the orders of the Intendant, in addition to the cards, circulating in the market to the extent of thirty millions. People, fear, I think without foundation, that the government will make a sort of assignment or authorize a depreciation. This opinion induces them to sell and speculate at an extravagant scale and price. . . .
On 15 October 1759, the French government suspended payment of bills of exchange drawn on the Treasury for payment of expenses in Canada until three months after peace was restored. Paper money traded at a sharp discount. Immediately following the British conquest in 1760, paper money became all but worthless. But
business in Canada did not come to a halt. Gold and silver that had been hoarded came back into circulation.
Gresham’s Law, commonly described as the principle that "bad money drives out good,” was attributed in the nineteenth century to Sir Thomas Gresham (1519–79), an English merchant and financier. In a letter to Queen Elizabeth I, after her accession in 1558, Gresham made this observation in reference to the poor state of English coinage owing to the debasement of the currency during the reigns of her predecessors. While often ascribed to Gresham, the principle had, in fact, been widely observed and commented on in much earlier times.
The idea behind the principle is that people will use "bad” money (e.g., debased coins or paper money) in payments, while "good” money (full-weight coins) is hoarded. However, Gresham’s Law is frequently misunderstood. A more accurate rendition of the principle is that bad money drives out good money if they are exchanged at the same price. Such a situation would arise if both modes of payment are legal tender and therefore can be used equally to make payments. Moreover, good money can circulate alongside bad if the demand for money for transactions purposes is not fully satisified by the circulation of bad money. As well, over history, strong currencies, from the Roman denarius to the U.S. dollar, have predominated in international trade over weak currencies because of widespread
confidence in their quality and stability. See Mundell (1998) for an extensive review.
Settlement of the paper obligations issued by the colonial authorities in Canada was included in the Treaty of Paris, signed in February 1763, which ended the war between Great Britain and France. In anticipation of a favourable settlement, speculators bought card and other paper money. British merchants also began to accept the paper, although at a discount of 80 to 85 per cent. Governor Murray, in charge of British troops in Quebec, recommended that Canadians hold onto their paper in the hope of a better deal. After extensive negotiations over the next three years, the French government finally agreed to convert card money and Treasury paper into interest-earning debentures on a sliding scale depending on the type of notes and their age, with discounts ranging from 50 per cent to 80 per cent. Typically, older notes were given a smaller discount. However, with the French government essentially bankrupt, these bonds quickly fell to a discount and, by 1771, they were worthless.
(France, louis d’or, 1723
The French government routinely shipped specie (gold and silver coins) to New France. This piece was retrieved from the wreck of Le Chameau, which sank off the coast of Cape Breton near Louisbourg on 26 August 1725.)