“If credence is given to colonial writers.” Revisiting the Colonial Money Puzzle

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 America. In so doing, Grubb offers interesting insights on how to tackle problems in the history of commodity money systems.

The model offered in this paper is part of Grubb’s project to assess what has been called “the colonial money puzzle”, a heated scholarly controversy on the applicability of the quantity theory of money in explaining monetary phenomena in colonial America.

In this paper, Grubb pertinently asserts the importance of measuring the dimensions and exchange mechanisms of the market sphere vis-à-vis the natural sphere of the economy, a distinction thoroughly explored by Alphons Dopsch (1930). Grubb advances the concept of efficient barter: whereas barter is understood as a very costly and inefficient way to exchange goods, efficient barter refers to the intricate structure of “store book-credit accounts with goods priced in common units of account”, either commodity-based or imaginary monies, which allowed the inhabitants of colonial America to carry business transactions in the face of specie scarcity (Grubb 2012: 16).

The concept of efficient barter allows the author to elaborate a model that accounts for the widespread complains of colonial actors about specie scarcity and their pleas for adopting paper money. Grubb’s model asserts that since individuals had an incentive to “export their specie to purchase imported goods”, a process of currency substitution made up for the lack of metallic money to conduct transactions through the adoption of efficient barter. (Grubb 2012: 28). It follows then that paper money worked as a means “to capture the value of the imported goods that only specie could buy, while also being able to efficiently execute domestic transactions”, hence increasing social welfare (Grubb 2012: 32).

Grubb’s paper is one of several works written by economic historians attempting to describe the monetary past with a more complex approach than that normally assumed by economists. “The history of money has been full of plurality until recent times” (Kuroda 2008: 7): monetary economists and historians are to portray this diversity in their models. In the light of the financial crisis of 2008, it seems relevant that monetary theory accounts for better explanations of the behavior of both endogenous and exogenous money: scholarship, theory and policy will be the main beneficiaries.


- Dopsch, Alphons. Naturalwirtschaft und Geldwirtschaft. Viena, L. W. Seidel, 1930.

- Kuroda, Akinobu. “What is the Complementarity Among Monies? An Introductory Note”. Financial History Review 15, 1 (2008): 7-15.

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About Manuel Bautista

Manuel A. Bautista González (Mexico City, 1984) is a third-year student in the United States History doctoral program at Columbia University in the City of New York, funded by CONACYT (Mexico), and Columbia's Richard Hofstadter Fellowship. Manuel specializes in U. S. economic, business and financial history. For his graduate work at Columbia, Manuel studies the use of Mexican silver dollars as means of payment and legal tender in the United States during the first half of the 19th century. Manuel is also interested in global history, Latin American history, the history of economic thought, the history of economics as discipline and profession, the methodology of economics and economic history, as well as the broader relationship between history, economics and other social sciences. Manuel obtained a B. A. in economics at the National Autonomous University of Mexico (UNAM), where he specialized in economic theory and economic history. After graduation, Manuel worked as an economist, creative planner and host of “Expedición 1808”, a TV series that revisited the bicentennial of the independence wars in Spanish America. This public history project produced by Nao Films for the Mexico City Government was broadcasted in National Geographic (Latin America), TV UNAM (Mexico) and TVE (Spain), among other channels. The series is also available via YouTube. After a stint in commercial banking, Manuel became a research assistant to Carlos Marichal (El Colegio de México) for a project on the history of global financial crises. At El Colegio de México, he helped developed a portal on sources for the study of the global economy. In addition, Manuel was an executive and research assistant to Luis Jáuregui (Mora Institute) in the Mexican Economic History Association. He was also a teaching assistant in Mexican economic history courses (undergraduate level) and lecturer of microeconomics (postgraduate level) at UNAM. Manuel has presented research papers on the monetary history of Mexico (19th and 20th centuries), as well as a paper on the role of Jeffrey Sachs in the Bolivian economic stabilization process during the 1980s. Since January 2008, Manuel is an editor of the mailing list and social media of the Mexican Economic History Association. He has also been a member of the editorial board of the NEP-HIS blog since February 2012. Most recently, Manuel was elected member of the Executive Committee 2013-2016 of the Mexican Economic History Association. Manuel has been a teaching assistant to David Weiman in the "Theoretical Foundations of Political Economy" course at Barnard (Fall 2012) as well as in Pablo Piccato's course "Mexico: From Revolution to Democracy" at Columbia (Spring 2013). In Fall 2013, Manuel is a teaching assistant to William Deringer in his "History of Finance" lecture course at Columbia. In 2012-2013, Manuel was a graduate student intern at the Rare Book and Manuscripts Library at Columbia, where he processed and created a finding aid for the Leon Fraser Papers. Manuel has also been rapporteur of the Economic History Seminar at Columbia University since August 2012.

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