I don't think that's true.  I think Free Banking was alive and well during that time, and Jefferson-et-al had no problem with that.  They were specifically speaking out against central banking using unbacked fiat currency.  It wasn't paper money they had a problem with, even back then.  

The Creature from Jekyll Island is a must read.

fiatbad

I believe they were aware of the dangers of unbacked fiat currency. It wasn't widespread at the time, but there had been previous historical instances of it.

Undisciplined

econ

Inflation: Slowly the Middle-Class Dies

Also, the paper money they had in mind was still paper money backed by gold/silver. I'm not sure they even conceived of the idea of totally unbacked fiat currency. It would probably blow their minds what we're doing today.

