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Monetary Policy and the Dollar

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Author Info
Peter L. Rousseau () (Department of Economics, Vanderbilt University)

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Abstract

In this essay I propose that the adoption of the U.S. dollar as a common currency shortly after the ratification of the Federal Constitution and the accompanying transition from a fiat to specie standard was a pivotal moment in the nationÕs early history and marked an improvement over the monetary systems of colonial America and under the Articles of Confederation. This is because the dollar and all that came with it monetized the modern sector of the U.S. economy and tied the supply of money more closely to the capital market and the provision of creditø feats that were not possible in an era when colonial legislatures were unable to credibly commit to controlling paper money emissions. The switch to a specie standard was at the time necessary to promote domestic and international confidence in the nascent financial system, and paved the way for the long transition to the point when the standard was no longer required.

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File URL: http://www.vanderbilt.edu/Econ/wparchive/workpaper/vu09-w13.pdf
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File Function: First version, 2009
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Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number 0913.

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Date of creation: Sep 2009
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Handle: RePEc:van:wpaper:0913

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Related research
Keywords: Colonial money; early US growth; quantity theory of money; backing theory; monetization;

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Find related papers by JEL classification:
N11 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - U.S.; Canada: Pre-1913
N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Arthur J. Rolnick & Bruce D. Smith & Warren E. Weber, 1993. "In order to form a more perfect monetary union," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 2-13. [Downloadable!]
  2. 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. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
    Other versions:
  4. Michener, Ronald, 1987. "Fixed exchange rates and the quantity theory in colonial America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 27(1), pages 233-307, January. [Downloadable!] (restricted)
  5. Sylla, Richard, 2002. "Financial Systems And Economic Modernization," The Journal of Economic History, Cambridge University Press, vol. 62(02), pages 277-292, June. [Downloadable!]
  6. Ronald W. Michener & Robert E. Wright, 2005. "State "Currencies" and the Transition to the U.S. Dollar: Clarifying Some Confusions," American Economic Review, American Economic Association, vol. 95(3), pages 682-703, June. [Downloadable!]
  7. Rousseau, Peter L. & Sylla, Richard, 2005. "Emerging financial markets and early US growth," Explorations in Economic History, Elsevier, vol. 42(1), pages 1-26, January. [Downloadable!] (restricted)
    Other versions:
  8. Sargent, Thomas J & Smith, Bruce D, 1987. "Irrelevance of Open Market Operations in Some Economies with Government Currency Being Dominated in Rate of Return," American Economic Review, American Economic Association, vol. 77(1), pages 78-92, March. [Downloadable!] (restricted)
  9. 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. [Downloadable!]
  10. 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. [Downloadable!] (restricted)
  11. Calomiris, Charles W., 1988. "Institutional Failure, Monetary Scarcity, and the Depreciation of the Continental," The Journal of Economic History, Cambridge University Press, vol. 48(01), pages 47-68, March. [Downloadable!]
  12. 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. [Downloadable!] (restricted)
  13. Rousseau, Peter L., 2006. "A common currency: early US monetary policy and the transition to the dollar," Financial History Review, Cambridge University Press, vol. 13(01), pages 97-122, April. [Downloadable!]
    Other versions:
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