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Money and inflation in colonial Massachusetts

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  • Bruce D. Smith

Abstract

This article argues that the quantity theory of money is not supported by the evidence. Contrary to the quantity theory, the article says, the value of money depends primarily on how carefully it is backed. That is, the rate of inflation depends more on underlying fiscal policies than on rates of money growth. The evidence for this argument comes from a close look at the way in which the colony of Massachusetts ended a severe long-term inflation in 1750. Other British North American colonies endured similar episodes, all of which parallel some periods of severe inflation in the 20th century United States. The 18th century evidence thus contains lessons for modern monetary policy. ; Reprinted in Quarterly Review, Fall 2002 (v. 26, no. 4)

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Bibliographic Info

Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1984)
Issue (Month): Win ()
Pages:

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Handle: RePEc:fip:fedmqr:y:1984:i:win:n:v.8no.1

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Related research

Keywords: Money theory ; Economic history;

References

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  1. E. Gerald Corrigan, 1980. "A new approach to monetary control," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  2. Neil Wallace, 1980. "Integrating micro and macroeconomics: an application to credit controls," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  3. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
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Citations

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Cited by:
  1. Marco Espinosa-Vega & Steven Russell, 1998. "The long-run real effects of monetary policy: Keynesian predictions from a neoclassical model," Working Paper 98-6, Federal Reserve Bank of Atlanta.
  2. Marco A. Espinosa-Vega & Steven Russell, 1997. "History and theory of the NAIRU: a critical review," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 4-25.
  3. Mark G. Guzman, 2008. "The Impact Of Paying Interest On Reserves In The Presence Of Government Deficit Financing," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 624-642, October.
  4. Steven Russell & Marco Espinosa, 1990. "The inflationary effects of the use of reserve ratio reductions, or open market purchases, to reduce market interest rates: a theoretical comparison," Working Papers 1990-006, Federal Reserve Bank of St. Louis.
  5. Andreas Schabert, 2006. "Central Bank Instruments, Fiscal Policy Regimes, and the Requirements for Equilibrium Determinacy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 742-762, October.
  6. Marco Espinosa-Vega & Steven Russell, 1999. "A public finance analysis of multiple reserve requirements," Working Paper 99-19, Federal Reserve Bank of Atlanta.
  7. Gary M. Pecquet & Clifford F. Thies, 2006. "Texas Treasury Warrants, 1861-1865: A Test Of The Tax-Backing Of Money," Eastern Economic Journal, Eastern Economic Association, vol. 32(2), pages 191-203, Spring.
  8. Marco Espinosa-Vega & Steven Russell, 2001. "Stability of steady states in a model of pleasant monetarist arithmetic," Working Paper 2001-20, Federal Reserve Bank of Atlanta.
  9. Preston J. Miller & William Roberds, 1992. "How little we know about deficit policy effects," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 2-11.
  10. Preston J. Miller & William Roberds, 1989. "How little we know about budget policy effects," Working Paper 89-4, Federal Reserve Bank of Atlanta.
  11. Officer, Lawrence H., 2005. "The quantity theory in New England, 1703-1749: new data to analyze an old question," Explorations in Economic History, Elsevier, vol. 42(1), pages 101-121, January.
  12. Preston J. Miller & Neil Wallace, 1985. "International coordination of macroeconomic policies: a welfare analysis," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
  13. Bruce D. Smith, 1988. "The relationship between money and prices: some historical evidence reconsidered," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 18-32.
  14. Gary Pecquet & Clifford Thies, 2010. "Money in occupied New Orleans, 1862–1868: A test of Selgin’s “salvaging” of Gresham’s Law," The Review of Austrian Economics, Springer, vol. 23(2), pages 111-126, June.
  15. James Bullard & Steve Russell, 1998. "Monetary steady states in a low real interest rate economy," Working Papers 1994-012, Federal Reserve Bank of St. Louis.

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