Fixed exchange rates and the quantity theory in colonial America

Michener, Ronald W.

doi:10.1016/0167-2231(87)90010-8

Cited by 44 publications

(34 citation statements)

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“…Therefore, the proposition that changes in V completely countered changes in M, and so eliminated any statistical relationship between M and P, seems empirically unlikely. Michener (1987) argued that the solution to the colonial monetary puzzle involved currency substitution between M and specie money. He asserted that paper money was not the only money in the colonies and that, in fact, specie money dominated.…”

Section: Background: the Colonial Monetary Puzzlementioning

confidence: 99%

“…Numerous scholars have suggested that changes in M may have positively influenced Y, either through traditional Keynesian stimulus, transactions cost efficiencies, or financial institution and monetization efficiencies (Hanson 1979;Labaree 1959, v. 1, pp. 141-57;9 This is not an original argument to Michener (1987). That the emission of paper money drove specie money out of the economy and vice versa was a frequent claim made by colonial contemporaries who opposed the emission of paper money.…”

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confidence: 99%

“…This 3 See Grubb (2003Grubb ( , 2004Grubb ( , 2005aGrubb ( , 2005bGrubb ( , 2006aGrubb ( , 2006bGrubb ( , 2010Grubb ( , 2012bGrubb ( , 2013b; Hanson (1979); McCallum (1992); Michener (1987Michener ( , 1988; Michener and Wright (2005, 2006a, 2006b); Officer (2005); Perkins (1988, pp. 163-86); Rousseau (2006Rousseau ( , 2007; Rousseau and Stroup (2011);Smith (1985aSmith ( , 1985bSmith ( , 1988; Sumner (1993); Weiss (1970); West (1978); Wicker (1985).…”

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confidence: 99%

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A New Approach to Solving the Colonial Monetary Puzzle: Evidence from New Jersey, 1709-1775

Grubb

2014

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The market value of colonial New Jersey's paper money is decomposed into its real asset present value and its liquidity premium. Its real asset present value accounted for over 80 percent, whereas its value as money per se accounted for under 20, percent of its market value. Colonial paper money was not a fiat currency. Its liquidity premium was driven by the quantity of paper money in circulation and the method of injection. The quantity theory of money performs poorly when using prices and exchange rates, but performs well when using real asset present values, to measure paper money's expected value. The market value of colonial New Jersey's paper money is decomposed into its real asset present value and its liquidity premium. Its real asset present value accounted for over 80 percent, whereas its value as money per se accounted for under 20, percent of its market value. Colonial paper money was not a fiat currency. Its liquidity premium was driven by the quantity of paper money in circulation and the method of injection. The quantity theory of money performs poorly when using prices and exchange rates, but performs well when using real asset present values, to measure paper money's expected value. Farley GrubbThe British North American colonies were the first western economies to emit sizeable amounts of colony-specific paper money, also called bills of credit. These bills were emitted directly by their respective colonial legislatures and not by banks. No specie-based commercial banks issuing paper banknotes exchangeable for specie on demand existed in British North America in this era. 2Explaining how colonial paper money regimes performed has proven controversial.Scholars have found that the statistical relationships between the quantity of paper money in Colonial legislatures had paper money printed and placed in their respective colonies' treasuries. They directly spent this money on soldiers' pay, military provisions, government salaries, and so on. In some cases, they loaned it out on interest to their respective subjects who secured these loans by pledging their lands as collateral. This legislatureissued paper money formed an important part of the circulating medium of exchange in many colonies (Brock 1975;Newman 2008 A new approach to explaining the market value of colonial paper money is offered here.It relies on the distinctive character of colonial paper money as bills of credit. The market value of a bill is decomposed into its real asset present value when used as just another barter good or non-money tradable bond, and its liquidity premium or "moneyness" value, namely its unique value as a medium of exchange. Bills of credit had legally defined future redemption dates when they would be paid off at face value in specie equivalents by the issuing government. Their real present value, under certainty of redemption as just another barter asset, can be calculated. The difference between these present values and the bills' valuations in the marketplace measures their liquidity premium.This...

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Section: Background: the Colonial Monetary Puzzlementioning

confidence: 99%

mentioning

confidence: 99%

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confidence: 99%

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A New Approach to Solving the Colonial Monetary Puzzle: Evidence from New Jersey, 1709-1775

Grubb

2014

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“…For example, see Grubb (2004Grubb ( , 2006aGrubb ( , 2006b; Hanson (1979);McCallum (1992); Michener (1987Michener ( , 1988; Michener andWright (2006a, 2006b); Officer (2005);Perkins (1988, 163-86); Rousseau and Stroup (2011);Smith (1985aSmith ( , 1985bSmith ( , 1988; Sumner (1993); Weiss (1970); West (1978); .…”

Section: Acknowledgmentsmentioning

confidence: 98%

Colonial New Jersey's Paper Money Regime, 1709–75: A Forensic Accounting Reconstruction of the Data

Grubb

2015

Historical Methods: A Journal of Quantitative and Interdiscipli

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Forensic accounting is used to reconstruct the data on emissions, redemptions, and bills outstanding for colonial New Jersey paper money. These components are further separated into the amounts initially legislated and the amounts actually executed. These data are substantial improvements over what currently exists in the literature. They also provide a more complete and nuanced accounting of colonial New Jersey's paper money regime than what has been done previously for any British North American colony. Enough detail of the forensic accounting exercise is given for scholars to reproduce the data series from the original sources.

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“…Nevertheless, there have been attempts to rescue, as it were, the QT. Michener (1987) allows the exchange rate regime in place to influence co-movements between the money stock and the price level. Movements in the two series need not be highly correlated at all times.…”

Section: Pt = a (L)ejmf+jmentioning

confidence: 99%

Hyperinflations: Their Origins, Development and Termination

Siklos

1990

Journal of Economic Surveys

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This paper summarizes and critically surveys research on hyperinflation. Appraisal and review of the literature considers the origins, development, termination, and the lessons to be learned from hyperinflations. The historical evidence as well as the econometric evidence is analyzed. It is concluded that while the lessons to be learned from such episodes perhaps have been overstated a number of useful implications may be derived from studying hyperinflations, such as an understanding of the forces which link monetary and fiscal policies to inflation, and policy makers' role in influencing individuals' expectations.

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Fixed exchange rates and the quantity theory in colonial America

Cited by 44 publications

References 12 publications

A New Approach to Solving the Colonial Monetary Puzzle: Evidence from New Jersey, 1709-1775

A New Approach to Solving the Colonial Monetary Puzzle: Evidence from New Jersey, 1709-1775

Colonial New Jersey's Paper Money Regime, 1709–75: A Forensic Accounting Reconstruction of the Data

Hyperinflations: Their Origins, Development and Termination

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