Comments on Franklin's Enquiry
The historical circumstances that led Franklin to publish his pamphlet are described in detail in Richard A. Lester's book, Monetary Experiments Early American and Recent Scandanavian, Chapter III, "Currency Issues to Overcome Depressions in Pennsylvania, 1723 and 1729," Princeton University Press, 1939, pp. 56-111. They are also discussed here.
John Webbedismissed Franklin's theory in a pamphlet "A Discourse Concerning Paper Money," published in Philadelphia in 1743. The relevant passage is as follows:
[p. 6] The value of the paper-money of Pennsylvania notwithstanding the obvious manner of accounting for it, is attributed by many to the land-security on which it is lent; and in support of this notion, the following argument, whoever first broached it, has been printed; which I shall particularly examine; for as it has been generally adopted, it cannot with decency be condemned in the lump. It runs thus. As those who take bills out of the banks in Europe put in money for security, so here we engage our Land. And as bills issued upon money security are money, so bills issued upon land security are, in effect, coined land. Now the Banks of Europe do actually borrow the money lodged with them, and therefore give their notes as a security for the repayment. But the paper-money-bank of Pennsylvania, to which the argument is applied, does not borrow but lend money, and therefore takes security from the borrowers for the repayment at the times stipulated. The two cases then, instead of having the least resemblance, being essentially opposite; it is impossible that any conclusion drawn from the one should be applicable to the other. Indeed the bills given by an European bank have the same power as the silver promised by 'em; because the possessors have a right to receive, and do also receive on demand the very sums expressed by such bills. But those of Pennsylvania cannot, for a like reason, nor for any reason, be considered as land; for tho' they be lent upon land, yet the possessors have no right to demand from any man, or any body of men, any land for 'em.
Fora modern version of Franklin's theory, see Theodore Thayer, "The Land Bank System in the American Colonies," Journal of Economic History vol XIII (1953), pp. 145-59, or Bruce Smith, "American Colonial Monetary Regimes: The Failure of the Quantity Theory and Some Evidence in Favor of an Alternate View," in The Canadian Journal of Economics, vol 18 (1985), pp. 531-64.
For a critique of the theory, see Ron Michener, "Fixed Exchange Rates and the Quantity Theory
in Colonial America," in The Carnegie-Rochester Conference Series on Public Policy, vol 27
(1987), pp. 233-308.
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