Ships of Britain's massive Royal Navy, the largest in the world, inflicted great damage on American ports, property, and vessels during the years of the Revolution (1775–1783). Perhaps none of those ships wreaked more havoc than HMS Phoenix, and it accomplished its devious work not with a cannon but with a printing press.

The bodies from the battle on Boston's Bunker Hill were buried just days earlier when the Second Continental Congress authorized the printing of paper money (see "The Times That Tried Men's Economic Souls"). What began with a modest batch of six million in continental dollars turned into a blizzard of several hundred million by the war's end, yielding a steady depreciation and giving rise to the famous phrase "not worth a continental." With nothing to back the money but murky promises to redeem it in precious metal at a future date, Congress didn't need any help to make it worthless, but the British were happy to assist, nonetheless.

"Efforts in war or peacetime to undermine the economies, societies, and governments of adversaries by falsifying their money," wrote John Cooley in his 2008 book Currency Wars, "have proliferated since ancient times." In the 1770s, the British adopted the ruination of the enemy's money as a potent instrument of war.

HMS Phoenix was a frigate, a fifth-rate vessel and among the smallest in London's fleet. Built in 1759, she carried a mere 44 guns. As part of a flotilla, she bombarded New York City in mid-July 1776 before anchoring off Staten Island.

By January 1776, Phoenix had begun counterfeiting continental dollars (mostly 30-dollar bills) and smuggling them onshore to help accelerate the devaluing of the new paper money. Think of it as a miniature Federal Reserve on the sea.

Benjamin Franklin later wrote that the British plan for the American paper currency was

to deprive us of its use by depreciating it; and the most effectual means they could contrive was to counterfeit it. The artists they employed performed so well, that immense quantities of these counterfeits, which issued from the British government in New York, were circulated among the inhabitants of all the States, before the fraud was detected. This operated considerably in depreciating the whole mass, first, by the vast additional quantity, and next by the uncertainty in distinguishing the true from the false; and the depreciation was a loss to all and the ruin of many.

In an article titled "The Successful British Counterfeiting of American Paper Money During the American Revolution," we learn from historian Eric P. Newman that the Brits understood the connection between the volume of money and money's value nearly 200 years before Milton Friedman expressed it in the famous formula, MV = PY. As with anything else, the more there is of it, ceteris paribus, the less any one unit of it will be worth. Newman explains:

During the American Revolution the method devised by the British was a powerful three-pronged attack. It consisted of (1) the preparation and distribution of actual counterfeits of the American paper money; (2) the encouragement of "Tories" and cheats to counterfeit and pass counterfeits independently; and (3) the issuance of propaganda as to the excellent quality and enormous quantity of counterfeits in circulation. The degree of effectiveness of these activities cannot be measured other than by recognizing that American paper money depreciated most when British counterfeiting activity was at its height.