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Interest-Bearing Currency and Legal Restrictions Theory: Lessons from the Southern Confederacy

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  • Richard C.K. Burdekin

    (Claremont McKenna College)

  • Marc D. Weidenmier

    (Claremont McKenna College and NBER)

Abstract

Instances of interest-bearing currency are relatively rare. The Southern Confederacy issued both interest and non-interest-bearing notes during the Civil War. The two types of notes apparently circulated alongside one another with the interest-bearing currency generally commanding the premium implied by legal restrictions theory. Government-imposed restrictions on banks prevented the non-interest-bearing notes from being driven out of circulation. The Southern experience appears to be consistent with the legal restrictions theory of money and suggests a potential role for interest-bearing currency as a circulating medium.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 1999-14.

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Handle: RePEc:clm:clmeco:1999-14

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  1. Neil Wallace, 1983. "A legal restrictions theory of the demand for "money" and the role of monetary policy," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win.
  2. Gorton, Gary, 1996. "Reputation Formation in Early Bank Note Markets," Journal of Political Economy, University of Chicago Press, vol. 104(2), pages 346-97, April.
  3. Makinen, Gail E & Woodward, G Thomas, 1999. "Use of Interest-Bearing Currency in the Civil War: The Experience below the Mason-Dixon Line," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 121-29, February.
  4. White, Lawrence H, 1987. "Accounting for Non-interest-Bearing Currency: A Critique of the Legal Restrictions Theory of Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(4), pages 448-56, November.
  5. Richard C.K. Burdekin & Marc D. Weidenmier, . "Inflation is Always and Everywhere a Monetary Phenomenon: Richmond vs. Houston in 1864," Claremont Colleges Working Papers 1999-31, Claremont Colleges.
  6. Richard C. K. Burdekin & Marc D. Weidenmier, 2003. "Suppressing Asset Price Inflation: The Confederate Experience, 1861--1865," Economic Inquiry, Western Economic Association International, vol. 41(3), pages 420-432, July.
  7. Cowen, Tyler & Kroszner, Randall, 1989. "Scottish Banking before 1845: A Model for Laissez-Faire?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(2), pages 221-31, May.
  8. Gherity, James A, 1993. "Interest-Bearing Currency: Evidence from the Civil War Experience: A Note," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(1), pages 125-31, February.
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Cited by:
  1. David Andolfatto, 2005. "On the Coexistence of Money and Bonds," Macroeconomics 0502020, EconWPA.
  2. Richard C.K. Burdekin & Marc D. Weidenmier, . "Circulating Interest-Bearing Currency: An Arkansan Experiment, 1861-1863," Claremont Colleges Working Papers 2003-04, Claremont Colleges.

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