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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

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  • Farley Grubb

    () (Department of Economics, University of Delaware)

Abstract

The British North American colonies were the first western economies to rely on legislative-issued fiat paper monies as their principal internal media of exchange. This system arose piecemeal. It was monetary experimentation on a grand scale. In the absence of banks and treasuries that exchanged local fiat monies at fixed rates for specie monies (outside monies) on demand, colonial governments experimented with other ways to anchor their fiat monies to real values in the economy. These mechanisms included tax-redemption, interest-bearing notes, land-backed mortgage loans, sinking funds, and legal tender laws. The structure and performance of these mechanisms are explained.

Suggested Citation

  • 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.
  • Handle: RePEc:dlw:wpaper:12-07.
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    File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2012/UD-WP-2012-07.pdf
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    References listed on IDEAS

    as
    1. Alvin Rabushka, 2008. "Introduction to Taxation in Colonial America," Introductory Chapters,in: Taxation in Colonial America Princeton University Press.
    2. 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.
    3. Farley Grubb, 2011. "The Continental Dollar: Initial Design, Ideal Performance, and the Credibility of Congressional Commitment," NBER Working Papers 17276, National Bureau of Economic Research, Inc.
    4. Farley Grubb, 2011. "State Redemption of the Continental Dollar, 1779-1790," NBER Working Papers 17209, National Bureau of Economic Research, Inc.
    5. 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.
    6. 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.
    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 143-161, February.
    8. Farley Grubb, 2012. "Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America," NBER Working Papers 18099, National Bureau of Economic Research, Inc.
    9. Grubb, Farley, 2010. "Testing for the Economic Impact of the U.S. Constitution: Purchasing Power Parity Across the Colonies versus Across the States, 1748–1811," The Journal of Economic History, Cambridge University Press, vol. 70(01), pages 118-145, March.
    10. Farley Grubb, 2003. "Creating the U.S. Dollar Currency Union, 1748–1811: A Quest for Monetary Stability or a Usurpation of State Sovereignty for Personal Gain?," American Economic Review, American Economic Association, vol. 93(5), pages 1778-1798, December.
    11. Sheridan, Richard B., 1960. "The British Credit Crisis of 1772 and The American Colonies," The Journal of Economic History, Cambridge University Press, vol. 20(02), pages 161-186, June.
    12. West, Robert Craig, 1978. "Money in the Colonial American Economy," Economic Inquiry, Western Economic Association International, vol. 16(1), pages 1-15, 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, 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, vol. 41(4), pages 329-360, October.
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    More about this item

    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.;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • K29 - Law and Economics - - Regulation and Business Law - - - Other
    • N11 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: Pre-1913
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N41 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: Pre-1913

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