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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

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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18099.

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Date of creation: May 2012
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Handle: RePEc:nbr:nberwo:18099

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  1. 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.
  2. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  3. Alvin Rabushka, 2008. "Introduction to Taxation in Colonial America
    [Taxation in Colonial America]
    ," Introductory Chapters, Princeton University Press.
  4. Farley Grubb, 2008. "Creating Maryland’s Paper Money Economy, 1720-1739: The Role of Power, Print, and Markets," Working Papers 08-16, University of Delaware, Department of Economics.
  5. 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.
  6. West, Robert Craig, 1978. "Money in the Colonial American Economy," Economic Inquiry, Western Economic Association International, vol. 16(1), pages 1-15, January.
  7. McCallum, Bennett T, 1992. "Money and Prices in Colonial America: A New Test of Competing Theories," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 143-61, February.
  8. Farley Grubb, 2012. "Is Paper Money just Paper Money/ Experimentation and Local Variation in the Fiat Paper Monies Issued by the Colonial Government of British North America, 1690-1775: Part I," Working Papers 12-07, University of Delaware, Department of Economics.
  9. Farley Grubb, 2006. "Benjamin Franklin and the birth of a paper money economy," Monograph, Federal Reserve Bank of Philadelphia, number 2006bfatboapm.
  10. 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.
  11. Wallace, Neil & Zhou, Ruilin, 1997. "A model of a currency shortage," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 555-572, December.
  12. Redish, Angela, 1984. "Why Was Specie Scarce in Colonial Economies? An Analysis of the Canadian Currency, 1796–1830," The Journal of Economic History, Cambridge University Press, vol. 44(03), pages 713-728, September.
  13. Angela Redish & Warren E. Weber, 2008. "Coin sizes and payments in commodity money systems," Working Papers 658, Federal Reserve Bank of Minneapolis.
  14. 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.
  15. 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, vol. 41(4), pages 329-360, October.
  16. 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.
  17. 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.
  18. Smith, Bruce D, 1985. "Some Colonial Evidence on Two Theories of Money: Maryland and the Carolinas," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1178-1211, December.
  19. 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.
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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 Government of British North America, 1690-1775: Part I," Working Papers 12-07, University of Delaware, Department of Economics.

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