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Money and Prices in Colonial America: A New Test of Competing Theories

  • McCallum, Bennett T

In a long-standing controversy over monetary experiences in colonial America, the main substantive issue concerns large and rapid increases in stocks of paper currency that were followed by negligible changes in price levels. The "backing theory" or anticlassical interpretation is that prices failed to respond to major increases in total money supplies. The "quantity theory" or classical hypothesis, by contrast, is that specie was exported in amounts that left total money stocks approximately unchanged. This paper develops and applies a strategy for resolving this fundamental disagreement despite the absence of data on stocks and flows of specie. Copyright 1992 by University of Chicago Press.

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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 100 (1992)
Issue (Month): 1 (February)
Pages: 143-61

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Handle: RePEc:ucp:jpolec:v:100:y:1992:i:1:p:143-61
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  1. West, Robert Craig, 1978. "Money in the Colonial American Economy," Economic Inquiry, Western Economic Association International, vol. 16(1), pages 1-15, January.
  2. 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.
  3. Bennett T. McCallum, 1982. "The Role of Overlapping-Generations Models in Monetary Economics," NBER Working Papers 0989, National Bureau of Economic Research, Inc.
  4. Hanson, John R, II, 1979. "Money in the Colonial American Economy: An Extension," Economic Inquiry, Western Economic Association International, vol. 17(2), pages 281-86, April.
  5. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  6. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
  7. 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.
  8. 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.
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