IDEAS home Printed from https://ideas.repec.org/p/dlw/wpaper/12-08..html
   My bibliography  Save this paper

Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America

Author

Listed:
  • Farley Grubb

    (Department of Economics, University of Delaware)

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.

Suggested Citation

  • Farley Grubb, 2012. "Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America ," Working Papers 12-08, University of Delaware, Department of Economics.
    • Handle: RePEc:dlw:wpaper:12-08.
    as

    Download full text from publisher

    File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2012/UD-WP-2012-08.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. 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.
    2. Alvin Rabushka, 2008. "Introduction to Taxation in Colonial America," Introductory Chapters, in: Taxation in Colonial America, Princeton University Press.
    3. 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.
    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. Harris, Ron, 1994. "The Bubble Act: Its Passage and Its Effects on Business Organization," The Journal of Economic History, Cambridge University Press, vol. 54(3), pages 610-627, September.
    6. 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.
    7. Thomas J. Sargent & Neil Wallace, 1984. "Some Unpleasant Monetarist Arithmetic," Palgrave Macmillan Books, in: Brian Griffiths & Geoffrey E. Wood (ed.), Monetarism in the United Kingdom, pages 15-41, Palgrave Macmillan.
    8. 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.
    9. Farley Grubb, 2016. "Is Paper Money Just Paper Money? Experimentation and Variation in the Paper Monies Issued by the American Colonies from 1690 to 1775," Research in Economic History, in: Research in Economic History, volume 32, pages 147-224, Emerald Group Publishing Limited.
    10. West, Robert Craig, 1978. "Money in the Colonial American Economy," Economic Inquiry, Western Economic Association International, vol. 16(1), pages 1-15, 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. Wicker, Elmus, 1985. "Colonial Monetary Standards Contrasted: Evidence from the Seven Years' War," The Journal of Economic History, Cambridge University Press, vol. 45(4), pages 869-884, December.
    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. Farley Grubb, 2006. "Benjamin Franklin and the birth of a paper money economy," Monograph, Federal Reserve Bank of Philadelphia, number 2006bfatboapm, December.
    15. 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 531-565, August.
    16. 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.
    17. 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.
    18. 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(3), pages 713-728, September.
    19. Redish, Angela & Weber, Warren E., 2011. "Coin Sizes And Payments In Commodity Money Systems," Macroeconomic Dynamics, Cambridge University Press, vol. 15(S1), pages 62-82, April.
    20. 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.
    21. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    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 08:19:53

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    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.
    2. Farley Grubb, 2016. "Is Paper Money Just Paper Money? Experimentation and Variation in the Paper Monies Issued by the American Colonies from 1690 to 1775," Research in Economic History, in: Research in Economic History, volume 32, pages 147-224, Emerald Group Publishing Limited.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Farley Grubb, 2016. "Is Paper Money Just Paper Money? Experimentation and Variation in the Paper Monies Issued by the American Colonies from 1690 to 1775," Research in Economic History, in: Research in Economic History, volume 32, pages 147-224, Emerald Group Publishing Limited.
    2. 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.
    3. 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.
    4. Farley Grubb, 2003. "Two Theories of Money Reconciled: The Colonial Puzzle Revisited with New Evidence," Working Papers 03-03, University of Delaware, Department of Economics.
    5. Farley Grubb, 2014. "A New Approach to Explaining the Value of Colonial Paper Money: Evidence from New Jersey, 1709-1775," Working Papers 14-08, University of Delaware, Department of Economics.
    6. Farley Grubb, 2014. "A New Approach to Solving the Colonial Monetary Puzzle: Evidence from New Jersey, 1709-1775," NBER Working Papers 19903, National Bureau of Economic Research, Inc.
    7. 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.
    8. 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.
    9. Farley Grubb, 2013. "Colonial New Jersey's Paper Money Regime, 1709-1775: A Forensic Accounting Reconstruction of the Data," NBER Working Papers 19710, National Bureau of Economic Research, Inc.
    10. Ronald W. Michener, 2019. "Re-examination of the Empirical Evidence Concerning Colonial New Jersey's Paper Money, 1709–1775: A Comment on Farley Grubb," Econ Journal Watch, Econ Journal Watch, vol. 16(2), pages 180–217-1, September.
    11. Cutsinger, Bryan P. & Rouanet, Louis & Ingber, Joshua S., 2023. "Assignats or death: The politics and dynamics of hyperinflation in revolutionary France," European Economic Review, Elsevier, vol. 157(C).
    12. Bryan P Cutsinger & Vincent Geloso & Mathieu Bédard, 2022. "The wild card: colonial paper money in French North America, 1685 to 1719 [Economic Structure and Agricultural Productivity in Europe, 1300–1800]," European Review of Economic History, European Historical Economics Society, vol. 26(2), pages 185-207.
    13. Rousseau, Peter L. & Stroup, Caleb, 2011. "Monetization and growth in colonial New England, 1703–1749," Explorations in Economic History, Elsevier, vol. 48(4), pages 600-613.
    14. Peter L. Rousseau, 2010. "Monetary Policy and the Dollar," NBER Chapters, in: Founding Choices: American Economic Policy in the 1790s, pages 121-149, National Bureau of Economic Research, Inc.
    15. Michael Sproul, 1998. "The Quantity Theory versus the Real Bills Doctrine in Colonial America," UCLA Economics Working Papers 775B, UCLA Department of Economics.
    16. Ronald W. Michener & Robert E. Wright, 2006. "Farley Grubb’s Noisy Evasions on Colonial Money: A Rejoinder," Econ Journal Watch, Econ Journal Watch, vol. 3(2), pages 251-274, May.
    17. 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.
    18. Peter L. Rousseau, 2007. "Backing, the Quantity Theory, and the Transition to the US Dollar, 1723–1850," American Economic Review, American Economic Association, vol. 97(2), pages 266-270, May.
    19. Michael F. Sproul, 2003. "There's No Such Thing As Fiat Money," UCLA Economics Working Papers 830, UCLA Department of Economics.
    20. 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.

    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.;
    All these keywords.

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F54 - International Economics - - International Relations, National Security, and International Political Economy - - - Colonialism; Imperialism; Postcolonialism
    • 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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dlw:wpaper:12-08.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Saul Hoffman (email available below). General contact details of provider: https://edirc.repec.org/data/deudeus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.