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Money and inflation in colonial Massachusetts

  • Bruce D. Smith

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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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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  1. E. Gerald Corrigan, 1980. "A new approach to monetary control," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  2. 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.
  3. Neil Wallace, 1980. "Integrating micro and macroeconomics: an application to credit controls," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
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