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Is Paper Money Just Paper Money? Experimentation and Variation in the Paper Monies Issued by the American Colonies from 1690 to 1775

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  • Farley Grubb

Abstract

The British North American colonies were the first western economies to rely on legislature-issued paper monies as an important internal media of exchange. This system arose piecemeal. In the absence of banks and treasuries that exchanged paper monies at face value for specie monies on demand, colonial governments experimented with other ways to anchor their paper monies to real values in the economy. These mechanisms included tax-redemption, land-backed loans, sinking funds, interest-bearing notes, and legal tender laws. The structure and performance of these mechanisms are explained and assessed. This was monetary experimentation on a grand scale. "[The colonies] cannot keep Gold and Silver among them sufficient for the Purposes of their internal Commerce... Paper Bills called Bills of Credit or Paper Money have therefore in the colonies long been substituted for real Money. Various Ways of issuing these and on different Foundations, have at different Times been thought of and practised.... On the whole no Method has been found to give any Degree of fixed, steady, uniform Value to Bills of Credit in America,..." (Benjamin Franklin, 13 Feb. 1767)

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  • Farley Grubb, 2012. "Is Paper Money Just Paper Money? Experimentation and Variation in the Paper Monies Issued by the American Colonies from 1690 to 1775," NBER Working Papers 17997, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17997
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    Cited by:

    1. 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.
    2. Farley Grubb, 2015. "Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1776," NBER Working Papers 21728, National Bureau of Economic Research, Inc.
    3. Farley Grubb, 2015. "Colonial Virginia’s Paper Money Regime, 1755-1774: a Forensic Accounting Reconstruction of the Data," NBER Working Papers 21785, National Bureau of Economic Research, Inc.
    4. 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).
    5. 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.
    6. Farley Grubb, 2015. "Common Currency versus Currency Union: The U.S. Continental Dollar and Denominational Structure, 1775-1779," Working Papers 15-10, University of Delaware, Department of Economics.

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    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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