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A New Approach to Explaining the Value of Colonial Paper Money: Evidence from New Jersey, 1709-1775

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  • FARLEY GRUBB

    (Department of Economics,University of Delaware)

Abstract

A new approach to explaining the value of colonial paper money that relies on their distinctive character as bills of credit is presented. The market value of these bills is decomposed into their real asset present value and their liquidity premium value. This approach is applied to the newly reconstructed monetary data for colonial New Jersey. The real asset present value of New Jersey bills accounted for at least 80 percent, whereas the value of these bills as “money” accounted for at most 10 to 20 percent, of their market value. Colonial paper money was not primarily a fiat currency.

Suggested Citation

  • 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.
    • Handle: RePEc:dlw:wpaper:14-08.
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    File URL: http://www.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2014/UDWP2014-08.pdf
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    References listed on IDEAS

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    Cited by:

    1. Farley Grubb, 2015. "Colonial New Jersey's Provincial Fiscal Structure, 1709-1775: Spending Obligations, Revenue Sources, and Tax Burdens in War and in Peace," NBER Working Papers 21152, National Bureau of Economic Research, Inc.
    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.
    3. Farley Grubb, 2016. "Colonial Virginia's Paper Money Regime, 1755-1774: Value Decomposition and Performance," NBER Working Papers 21881, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    commodity money; currency depreciation; exchange rates; fiat currency; fiscal backing theory of money; land banks; money supply; present value; price inflation; purchasing power parity; quantity theory of money; Seven Year’s War; value of money; zero-interest bearer bonds;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • 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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