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

Farley Grubb

No 12-08, Working Papers from University of Delaware, Department of Economics

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.

Keywords: Adam Smith; barter; bearer bonds; Benjamin Franklin; bills of credit; colonial America currency substitution; fiat currency; interest-bearing money; legal tender; paper money; quantity theory of money; sinking fund; specie money; tax-redemption. (search for similar items in EconPapers)
JEL-codes: B12 B22 B31 D61 E41 E42 E52 F11 F41 F54 N11 N21 N41 (search for similar items in EconPapers)
Pages: 41
Date: 2012
New Economics Papers: this item is included in nep-his and nep-mon
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Working Paper: Chronic Specie Scarcity and Efficient Barter: The Problem of Maintaining an Outside Money Supply in British Colonial America (2012)
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