Early American Monetary History

On Puzzling Colonial Money

The NEP-HIS Blog

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

Farley Grubb (grubbf@udel.edu), University of Delaware (United States)

URL: http://d.repec.org/n?u=RePEc:dlw:wpaper:12-08.&r=his

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.

Review by:Manuel Bautista González

Farley Grubb

“Assuming money rather than explaining it allows economists to do money-price-output analysis without caveats” – Grubb 2012: 22

This paper distributed in NEP-HIS 2012-05-22 embeds institutional, regulatory and market constraints within a transactions cost model to account for the chronic specie scarcity affecting British colonial…

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