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

  • Farley Grubb

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18099.

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Date of creation: May 2012
Date of revision:
Handle: RePEc:nbr:nberwo:18099
Note: DAE
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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. Farley Grubb, 2007. "Benjamin Franklin and the Birth of a Paper Money Economy," Working Papers 07-01, University of Delaware, Department of Economics.
  3. 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.
  4. 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.
  5. Bennett T. McCallum, 1990. "Money and Prices in Colonial America: A New Test of Competing Theories," NBER Working Papers 3383, National Bureau of Economic Research, Inc.
  6. 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.
  7. Neil Wallace & Ruilin Zhou, 1996. "A model of a currency shortage," Working Papers 569, Federal Reserve Bank of Minneapolis.
  8. 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(03), pages 713-728, September.
  9. 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.
  10. Alvin Rabushka, 2008. "Introduction to Taxation in Colonial America
    [Taxation in Colonial America]
    ," Introductory Chapters, Princeton University Press.
  11. 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.
  12. 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.
  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. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  15. 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.
  16. 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.
  17. 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.
  18. 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.
  19. 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.
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