A New Approach to Explaining the Value of Colonial Paper Money: Evidence from New Jersey, 1709-1775

Farley Grubb

No 14-08, Working Papers from University of Delaware, Department of Economics

Abstract: A new approach to explaining the value of colonial paper money that relies on their distinctive character as bills of credit is presented. The market value of these bills is decomposed into their real asset present value and their liquidity premium value. This approach is applied to the newly reconstructed monetary data for colonial New Jersey. The real asset present value of New Jersey bills accounted for at least 80 percent, whereas the value of these bills as “money” accounted for at most 10 to 20 percent, of their market value. Colonial paper money was not primarily a fiat currency.

Keywords: commodity money; currency depreciation; exchange rates; fiat currency; fiscal backing theory of money; land banks; money supply; present value; price inflation; purchasing power parity; quantity theory of money; Seven Year’s War; value of money; zero-interest bearer bonds (search for similar items in EconPapers)
JEL-codes: E31 E42 E51 N11 N21 N41 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2014
New Economics Papers: this item is included in nep-his, nep-hpe, nep-mac and nep-mon
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Citations: View citations in EconPapers (5)

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