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Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America

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  • Farley Grubb

    ()
    (Department of Economics, University of Delaware)

Abstract

Colonial Americans complained that gold and silver coins (specie) were chronically scarce. These coins could be acquired only through importation. Given unrestricted trade in specie, market arbitrage should have eliminated chronic scarcity. A model of efficient barter and local inside money is developed to show how chronic specie scarcity in colonial America could prevail despite unrestricted specie-market arbitrage, thus justifying colonial complaints. The creation of inside fiat paper monies by colonial governments was a welfare-enhancing response to preexisting chronic specie scarcity, not the cause of that scarcity.

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Bibliographic Info

Paper provided by University of Delaware, Department of Economics in its series Working Papers with number 12-08.

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Length: 41
Date of creation: 2012
Date of revision:
Handle: RePEc:dlw:wpaper:12-08.

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Web page: http://www.lerner.udel.edu/departments/economics/department-economics/
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Keywords: Adam Smith; barter; bearer bonds; Benjamin Franklin; bills of credit; colonial America currency substitution; fiat currency; interest-bearing money; legal tender; paper money; quantity theory of money; sinking fund; specie money; tax-redemption.;

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References

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  1. Wallace, Neil & Zhou, Ruilin, 1997. "A model of a currency shortage," Journal of Monetary Economics, Elsevier, Elsevier, vol. 40(3), pages 555-572, December.
  2. Farley Grubb, 2012. "Is Paper Money Just Paper Money? Experimentation and Local Variation in the Fiat Paper Monies Issued by the Colonial Governments of British North America, 1690-1775: Part I," NBER Working Papers 17997, National Bureau of Economic Research, Inc.
  3. Farley Grubb, 2007. "Benjamin Franklin and the Birth of a Paper Money Economy," Working Papers, University of Delaware, Department of Economics 07-01, University of Delaware, Department of Economics.
  4. Angela Redish & Warren E. Weber, 2008. "Coin sizes and payments in commodity money systems," Staff Report, Federal Reserve Bank of Minneapolis 416, Federal Reserve Bank of Minneapolis.
  5. Officer, Lawrence H., 2005. "The quantity theory in New England, 1703-1749: new data to analyze an old question," Explorations in Economic History, Elsevier, Elsevier, vol. 42(1), pages 101-121, January.
  6. Bennett T. McCallum, 1990. "Money and Prices in Colonial America: A New Test of Competing Theories," NBER Working Papers 3383, National Bureau of Economic Research, Inc.
  7. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Fall.
  8. Farley Grubb, 2006. "Benjamin Franklin and Colonial Money: A Reply to Michener and Wright—Yet Again," Econ Journal Watch, Econ Journal Watch, vol. 3(3), pages 484-510, September.
  9. Alvin Rabushka, 2008. "Introduction to Taxation in Colonial America
    [Taxation in Colonial America]
    ," Introductory Chapters, Princeton University Press.
  10. Farley Grubb, 2008. "Creating Maryland’s Paper Money Economy, 1720-1739: The Role of Power, Print, and Markets," Working Papers, University of Delaware, Department of Economics 08-16, University of Delaware, Department of Economics.
  11. Harris, Ron, 1994. "The Bubble Act: Its Passage and Its Effects on Business Organization," The Journal of Economic History, Cambridge University Press, vol. 54(03), pages 610-627, September.
  12. Farley Grubb, 2006. "Theory, Evidence, and Belief— The Colonial Money Puzzle Revisited: Reply to Michener and Wright," Econ Journal Watch, Econ Journal Watch, vol. 3(1), pages 45-72, January.
  13. Smith, Bruce D, 1985. "Some Colonial Evidence on Two Theories of Money: Maryland and the Carolinas," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(6), pages 1178-1211, December.
  14. Grubb, Farley, 2004. "The circulating medium of exchange in colonial Pennsylvania, 1729-1775: new estimates of monetary composition, performance, and economic growth," Explorations in Economic History, Elsevier, Elsevier, vol. 41(4), pages 329-360, October.
  15. Michener, Ron, 1988. "Backing Theories and the Currencies of Eighteenth-Century America: A Comment," The Journal of Economic History, Cambridge University Press, vol. 48(03), pages 682-692, September.
  16. repec:cup:jechis:v:44:y:1984:i:03:p:713-728_03 is not listed on IDEAS
  17. West, Robert Craig, 1978. "Money in the Colonial American Economy," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 16(1), pages 1-15, January.
  18. Ronald W. Michener & Robert E. Wright, 2006. "Miscounting Money of Colonial America," Econ Journal Watch, Econ Journal Watch, vol. 3(1), pages 4-44, January.
  19. Bruce D. Smith, 1985. "American Colonial Monetary Regimes: The Failure of the Quantity Theory and Some Evidence in Favour of an Alternative View," Canadian Journal of Economics, Canadian Economics Association, vol. 18(3), pages 531-65, August.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. “If credence is given to colonial writers”: Revisiting the Colonial Money Puzzle
    by Manuel Bautista in NEP-HIS blog on 2012-08-03 03:19:53
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Cited by:
  1. Farley Grubb, 2012. "Is Paper Money Just Paper Money? Experimentation and Local Variation in the Fiat Paper Monies Issued by the Colonial Governments of British North America, 1690-1775: Part I," NBER Working Papers 17997, National Bureau of Economic Research, Inc.

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