Money in the American Colonies

Ron Michener, University of Virginia


“There certainly can’t be a greater Grievance to a Traveller, from one Colony to another, than the different values their Paper Money bears.” An English visitor, circa 1742 (Kimber, 1998, p. 52).

The monetary arrangements in use in America before the Revolution were extremely varied. Each colony had its own conventions, laws, coin ratings, etc., and each issued its own paper money. The monetary system within each colony evolved over time, sometimes dramatically, as when Massachusetts abolished the use of paper money within her borders in 1750, and returned to a specie standard. Any encyclopedia-length overview of the subject will, unavoidably, need to generalize, and few generalizations about the colonial monetary system are immune to criticism, since counterexamples can usually be found somewhere in the historical record. Those readers who find their interest piqued by this article would be well advised to continue their study of the subject by consulting the more detailed discussions available in Brock (1956, 1975, 1992), Ernst (1973), and McCusker (1978).

Units of Account

In the colonial era the unit of account and the medium of exchange were distinct in ways that now seem strange. An example from modern times suggests how the ancient system worked. Nowadays, race horses are auctioned in England using guineas as the unit of account, although the guinea coin has long since disappeared. It is understood by all who participate in these auctions that payment is made according to the rule that one guinea equals 21s. Guineas are the unit of account, but the medium of exchange accepted in payment is something else entirely. The unit of account and medium of exchange were similarly disconnected in colonial times (Adler, 1900).

The units of account in colonial times were pounds, shillings, and pence (1£ = 20s., 1s. = 12d.). Footnote // These pounds, shillings, and pence, however, were local units, such as New York money, Pennsylvania money, Massachusetts money, or South Carolina money and should not be confused with sterling. To do so is comparable to treating modern Canadian dollars and American dollars as interchangeable simply because they are both called “dollars.” All the local currencies were less valuable than sterling. Footnote // A Spanish piece of eight, for instance, was worth 4 s. 6 d. sterling at the British mint. The same piece of eight, on the eve of the Revolution, would have been treated as 6 s. in New England, as 8 s. in New York, as 7 s. 6 d. in Philadelphia, and as 32 s. 6 d. in Charleston (McCusker, 1978).

The disconnect between the unit of account and medium of exchange is not the only thing that misleads modern scholars. Terms such as money and currency did not mean precisely the same thing in colonial times that they do today. In colonial times, “money” and “currency” were practically synonymous and signified whatever was conventionally used as a medium of exchange. Most commonly, this would be specie or paper money. However, this was not always the case. The word “currency” today refers narrowly to paper money, but that wasn’t so in colonial times. “The Word, Currency,” Hugh Vance wrote in 1740, “is in common Use in the Plantations . . . and signifies Silver passing current either by Weight or Tale. The same Name is also applicable as well to Tobacco in Virginia, Sugars in the West Indies &c. Every thing at the Market-Rate may be called a Currency; more especially that most general Commodity, for which Contracts are usually made. And according to that Rule, Paper-Currency must signify certain Pieces of Paper, passing current in the Market as Money” (Vance, 1740, CCR III, pp. 396, 431).

Failure to appreciate that the unit of account and medium of exchange were quite distinct in colonial times, and that a familiar term like “currency” had a subtly different meaning, can lead unsuspecting historians astray. They often assume that a phrase such as “£100 New York money” or “£100 New York currency” necessarily refers to £100 of the bills of credit issued by New York. In fact, it simply means £100 of whatever was accepted as money in New York, according to the valuations prevailing in New York. Footnote // Such subtle misunderstandings have led some historians to overestimate the ubiquity of paper money in colonial America.

Means of Payment – Book Credit

While simple “cash-and-carry” transactions sometimes occurred, most purchases involved at least short-term book credit. Henry Laurens said that before the revolution it had been “the practice to give credit for one and more years for 7/8th of the whole traffic” (Burnet, 1923, vol. 2, pp. 490-1). The buyer would receive goods, and be debited on the seller’s books for an agreed amount in the local money of account. The debt would be extinguished when the buyer paid the seller either in the local medium of exchange or in equally valued goods or services acceptable to the seller. When it was mutually agreeable the debt could be and often was paid in ways that nowadays seem very unorthodox – with the delivery of chickens, or a week’s work fixing fences on land owned by the seller. The debt might be paid at one remove, by the buyer fixing fences on land owned by someone to whom the seller was himself indebted. Accounts would then be settled among the individuals involved. Account books testify to the pervasiveness of this system, termed “bookkeeping barter” by Baxter. Baxter examined the accounts of John Hancock, and his father Thomas Hancock, both prominent Boston merchants, whose business dealings naturally involved an atypically large amount of cash. Even these gentlemen managed most of their transactions in such a way that no cash ever changed hands (Baxter, 1965; Plummer, 1942; Soltow, 1965, pp. 124-55; Forman, 1969).

An astonishing array of goods and services therefore served, by mutual consent, at some time or other, to extinguish debt. Whether these goods ought all to be classified as “money” is doubtful; they certainly lacked the liquidity and universal acceptability in exchange that ordinarily defines money. At certain times, and in certain colonies, however, specific commodities came to be so widely used in transactions that they might appropriately be termed money. Specie, of course, was such a commodity, but its worldwide acceptance as money made it special, so it is convenient to set it aside for a moment, and focus on the others.

Means of Payment – Commodity Money

At various times and places in the colonies, such items as tobacco, rice, sugar, beaver skins, wampum, and country pay all served as money. These items were generally accorded a special monetary status by various acts of colonial legislatures. Whether the legislative fiat was essential in monetizing these commodities, or whether it simply acknowledged the existing state of affairs is open to question. Sugar was used in the British Caribbean, tobacco was used in the Chesapeake, and rice in South Carolina, each being the central product of their respective plantation economies. Wampum signifies the stringed shells used by the Indians as money before the arrival of European settlers. Wampum and beaver skins were commonly used as money in the northern colonies, in the early stages of settlement, when the fur trade and Indian trade were still mainstays of the local economy (Nettels, 1928, 1934; Fernow, 1893; Massey, 1976; Brock, 1975, pp. 9-18).

Country pay is more complicated. Where it was used, country pay consisted of a hodgepodge of locally produced agricultural commodities that had been monetized by the colonial legislature. A list of commodities, such as Indian corn, beef, pork, etc. were assigned specific monetary values (so many s. per bushel or barrel) and debtors were permitted by statute to pay certain debts with their choice of these commodities, at nominal values set by the colonial legislature. In some instances, country pay was declared a legal tender for all private debts, although contracts explicitly requiring another form of payment might be exempted (Gottfried, 1936; Judd, 1905, pp. 94-96). Sometimes country pay was only a legal tender in payment of obligations to the colonial or town governments. Even where country pay was a legal tender only in payment of taxes, it was often used in private transactions and even served as a unit of account. Probate inventories from colonial Connecticut, where country pay was widely used, are generally denominated in country pay (Main and Main, 1988).

There were predictable difficulties where commodity money was used. A pound in “country pay” was simply not worth a pound in cash, even as that cash was valued locally. The legislature sometimes overvalued agricultural commodities in setting their nominal prices, and even when the legislature’s prices were not biased in favor of debtors, the debtor still had the power to select the particular commodity tendered, and had some discretion over the quality of that commodity. Therefore, when a group of men seeking to rent a farm in Connecticut offered Thomas Bannister £22 of country pay in 1700, Bannister hesitated. It appears Bannister wanted to be paid £15 per annum in cash. Country pay was “a very uncertain thing,” he wrote. Some years £22 in country pay might be worth £10, some years £12, but he did not expect to see a day when it would fetch fifteen. Footnote // Savvy merchants such as Bannister paid careful attention to the terms of payment. An unwary trader could easily be cheated. Just such an incident occurs in the comic satirical poem “The Sotweed Factor.” Sotweed is slang for tobacco, and a factor was a person in America representing a British merchant. Set in late seventeenth-century Maryland, the poem is a first-person account of the tribulations and humiliations a newly-arrived Briton suffers while seeking to enter the tobacco trade. The Briton agrees with a Quaker merchant to exchange his trade goods for ten thousand weight of oronoco tobacco, in cask and ready to ship. When the Quaker fails to deliver any tobacco, the aggrieved factor sues him at the Annapolis court, only to discover his attorney is a quack who divides his time between pretending to be a lawyer and pretending to be a doctor, and that the judges have to be called away from their Punch and Rum at the tavern to hear his case. The verdict?

The Byast Court without delay,
Adjudg'd my Debt in Country Pay:
In Pipe staves, Corn, or Flesh of Boar,

Rare Cargo for the English Shoar.

Thus ruined, the poor factor sails away, never to return. A footnote to the reader explains “There is a Law in this Country, the Plaintiff may pay his Debt in Country pay, which consists in the produce of the Plantation” (Cooke, 1708).

By the middle of the eighteenth century, commodity money had essentially disappeared in northern port cities, but still lingered in the hinterlands and plantation colonies. A pamphlet written in Boston in 1740 observed “Look into our British Plantations, and you’ll see [commodity] Money still in Use, As, Tobacco in Virginia, Rice in South Carolina, and Sugars in the Islands; they are the chief Commodities, used as the general Money, Contracts are made for them, Salaries and Fees of Office are paid in them, and sometimes they are made a lawful Tender at a yearly assigned Rate by publick Authority, even when Silver was promised” (Vance, 1740, CCR III, p. 396). North Carolina was an extreme case. Country pay there continued as a legal tender even in private debts. The system was amended in 1754 and 1764 to require rated commodities to be delivered to government warehouses and be judged of acceptable quality, at which point warehouse certificates were issued to the value of the goods (at mandated, not market prices): these certificates were a legal tender (Bullock, 1969, pp. 126-7, 157).

Means of Payment – Bills of Credit

Cash came in two forms: full-bodied specie coins (usually Spanish or Portuguese) and paper money known as “bills of credit.” Bills of credit were notes issued by provincial governments that were similar in many ways to modern paper money: they were issued in convenient denominations, were often a legal tender in the payment of debts, and routinely passed from man to man in transactions. Footnote // Bills of credit were ordinarily put into circulation in one of two ways. The most common method was for the colony to issue bills to pay its debts. Bills of credit were originally designed as a kind of tax-anticipation scrip, similar to that used by many localities in the United States during the Great Depression (Harper, 1948). Therefore, when bills of credit were issued to pay for current expenditures, a colony would ordinarily levy taxes over the next several years sufficient to call the bills in so they might be destroyed. Footnote // A second method was for the colony to lend newly printed bills on land security at attractive interest rates. The agency established to make these loans was known as a “land bank” (Thayer, 1953). Footnote // Bills of credit were denominated in the £., s., and d. of the colony of issue, and therefore were usually the only form of money in circulation that was actually denominated in the local unit of account. Footnote //

Sometimes even the bills of credit issued in a colony were not denominated in the local unit of account. The most striking example occurred in New England. Massachusetts, Connecticut, New Hampshire, and Rhode Island all had, long before the 1730s, emitted paper money in bills of credit known as “old tenor” bills of credit, and “old tenor” had become the most commonly-used unit of account in New England. The old tenor bills of all four colonies passed interchangeably and at par with one another throughout New England.

Beginning in 1737, Massachusetts introduced a new kind of paper money, known as “new tenor.” New tenor can be thought of as a monetary reform that ultimately failed to address underlying issues, although it also served as a way of evading a restriction the Board of Trade had placed on the Governor of Massachusetts, that limited him to emissions of not more than £30,000. The Massachusetts assembly declared each pound of the new tenor bills to be worth £3 in old tenor bills. What actually happened is that old tenor (abbreviated in records of the time as “O.T.”) continued to be the unit of account in New England, and so long as the old bills continued to circulate, a decreasing portion of the medium of exchange. Each new tenor bill was reckoned at three times its face value in old tenor terms. This was just the beginning of the confusion, for yet newer Massachusetts “new tenor” emissions were created, and the original “new tenor” emission became known as the “middle tenor.” Footnote // The new “new tenor” bills emitted by Massachusetts were accounted in old tenor terms at four times their face value. These bills, like the old ones, circulated across colony borders throughout New England. As if this were not complicated enough, New Hampshire, Rhode Island, and Connecticut all created new tenor emission of their own, and the factors used to convert these new tenor bills into old tenor terms varied across colonies (Davis, 1970; Brock, 1975; McCusker, pp. 131-137). Connecticut, for instance, had a new tenor emission such that each new tenor bill was worth 3½ times its face value in old tenor (Connecticut, vol. 8, pp. 359-60; Brock, 1975, pp. 45-6). “They have a variety of paper currencies in the [New England] provinces; viz., that of New Hampshire, the Massachusetts, Rhode Island, and Connecticut,” bemoaned an English visitor, “all of different value, divided and subdivided into old and new tenors, so that it is a science to know the nature and value of their moneys, and what will cost a stranger some study and application” (Hamilton, 1907, p. 179). Throughout New England, however, Old Tenor remained the unit of account. “The Price of [provisions sold at Market],” a contemporary pamphlet noted, “has been constantly computed in Bills of the old Tenor, ever since the Emission of the middle and new Tenor Bills, just as it was before their Emission, and with no more Regard to or Consideration of either the middle or new Tenor Bills, than if they had never been emitted” (Enquiry, 1744, CCR IV, p. 174). This occurred despite the fact that by 1750, only an inconsiderable portion of the bills of credit in circulation were denominated in old tenor. Footnote //

For the most part, bills of credit were fiat money. Although a colony’s treasurer would often consent to exchange these bills for other forms of cash in the treasury, there was rarely a provision in the law stating that holders of bills of credit had a legally binding claim on the government for a fixed sum in specie, and treasurers were sometimes unable to accommodate people who wished to exchange money (Nicholas, 1912, p. 257; The New York Mercury, January 27, 1759, November 24, 1760). Footnote // The form of the bills themselves was sometimes misleading in this respect. It was not uncommon for the bills to be inscribed with an explicit statement that the bill was worth a certain sum in silver. This was often no more than an expression of the assembly’s hope, at the time of issuance, of how the bills would circulate. Those hopes were sometimes disappointed. Footnote //

Maryland’s paper money was unique. Maryland’s paper money - unlike that of other colonies - gave the possessor an explicit legal claim on a valuable asset. Maryland had levied a tax and invested the proceeds of the tax in London. It issued bills of credit promising a fixed sum in sterling bills of exchange at predetermined dates, to be drawn on the colony’s balance in London. The colony’s accrued balances in London were adequate to fund the redemption, and when redemption dates arrived in 1748 and 1764, the sums then due were paid in full, so the colony’s pledge was considered credible.

Maryland’s paper money was unique in other ways as well. It was never a general legal tender, and its first emission was put into circulation in a novel fashion. Of the £90,000 emitted in 1733, £42,000 was lent to inhabitants, while the other £48,000 was simply given away, at the rate of £1.5 per taxable (McCusker, 1978, pp. 190-196; Brock, 1975, chapter 8; Lester, 1970, chapter 5). Maryland’s paper money was so peculiar that it is unrepresentative of the colonial experience. This was recognized even by contemporaries. Hugh Vance, in the Postscript to his Inquiry into the Nature and Uses of Money, dismissed Maryland as “intirely out of the Question; their Bills being on the Foot of promissory Notes” (Vance, 1740, CCR III, p. 462).

In 1690, Massachusetts was the first colony to issue bills of credit. The bills were issued to pay soldiers returning from a failed military expedition against Quebec. Over time, the rest of the colonies followed suit. The last holdout was Virginia, which issued its first bills of credit in 1755 to defray expenses associated with its entry into the French and Indian War. The common denominator here is wartime finance, and it is worthwhile to recognize that the vast majority of the bills of credit issued in the colonies were issued during wartime to pay for pressing military expenditures. Peacetime issues did occur, and are in some respects quite interesting, as they seem to have been motivated in part by a desire to stimulate the economy (Lester, 1970). However, peacetime emissions are dwarfed by those that occurred in war. Footnote // Some historians, enamored of the land bank system, whereby newly emitted bills were lent to landowners in order to promote economic development, have stressed the economic development aspect of colonial emissions - particularly those of Pennsylvania - while minimizing the military finance aspect (Schweitzer, 1989, pp. 313-4). The following graph, however, illustrates the fundamental importance of war finance, with the dramatic spike marking the French and Indian War (Brock, 1992, Tables 4, 6).


That bills in circulation peaked in 1760 reflects the fact that Quebec fell in 1759 and Montreal in 1760, so that the land war in North America was effectively over by 1760.

Because bills were disproportionally emitted for wartime finance, it is not surprising that the colonies whose currencies depreciated due to over-issue were those who shared a border with a hostile neighbor – the New England colonies, bordering French Canada, and the Carolinas bordering Spanish Florida. Footnote // The colonies from New York to Virginia were buffered by their neighbors, and therefore issued no more than modest amounts of paper money until they were drawn into the French and Indian war, by which time their economies were large enough to temporarily absorb the issues.

It is important not to confuse the bills of credit issued by a colony with the bills of credit circulating in that colony. “Under the circumstances of America before the war,” a Maryland resident wrote in 1787, “there was a mutual tacit consent that the paper of each colony should be received by its neighbours” (Hanson, 1787, p. 24). Between 1710 and 1750, the currencies of Massachusetts, Connecticut, New Hampshire, and Rhode Island passed indiscriminately and at par with one another in everyday transactions throughout New England (Brock, 1975, pp. 35-6). While not quite so integrated a currency area as New England, the colonies of New York, Pennsylvania, New Jersey, and Delaware each had bills of credit circulating within its neighbors’ borders (McCusker, 1978, pp. 169-70, 181-182). In the early 1760s, Pennsylvania money was the primary medium of exchange in Maryland (Maryland Gazette, September 15, 1763; Hazard, 1852, Eighth Series, vol. VII, p. 5826; McCusker, 1978, p. 193). In 1764, one quarter of South Carolina’s bills of credit circulated in North Carolina and Georgia (Ernst, 1973, p. 106). Where the currencies of neighboring colonies were of equal value, as was the case in New England between 1710 and 1750, bills of credit of neighboring colonies could be credited and debited in book accounts at face value. When this was not the case, as when Pennsylvania, Connecticut, or New Jersey bills of credit were used to pay a debt in New York, an adjustment had to be made to convert these sums to New York money. The conversion was usually based on the par values assigned to Spanish dollars by each colony. Indeed, this was also how merchants generally handled intercolonial exchange transactions (McCusker, 1978, p. 123). For example, on the eve of the Revolution, a Spanish dollar was rated at 7 s. 6 d. in Pennsylvania money, and at 8 s. in New York money. The ratio of eight to seven and a half being equal to 1.06666, Pennsylvania bills of credit were accepted in New York at a 6⅔% advance (Stevens, 1867, pp. 10-11, 18). Connecticut rated the Spanish dollar at 6 s., and since the ratio of eight to six is 1⅓, Connecticut bills of credit were accepted at a one third advance in New York (New York Journal, July 13, 1775). New Jersey’s paper money was a peculiar exception to this rule. By the custom of New York’s merchants, New Jersey bills of credit were accepted for thirty years or more at an advance of one pence in the shilling, or 8⅓%, even though New Jersey rated the Spanish dollar at 7 s, 6 d., just as Pennsylvania did. The practice was controversial in New York, and the advance was finally reduced to the “logical” 6⅔% advance by an act of the New York assembly in 1774. Footnote //

Means of Payment – Foreign Specie Coins

Specie coins were the other kind of cash that commonly circulated in the colonies. The gold and silver coins circulating in the colonies were generally of Spanish or Portuguese origin. Among the most important of these coins were the Portuguese Johannes and moidore (more formally, the moeda d’ouro), and the Spanish dollar and pistole.

The Johanneses were gold coins, 8 escudos (12,800 reis) in denomination; their name derived from the obverse of the coin, which bore the bust of Johannes V. Minted in Portugal and Brazil, they were commonly known in the colonies as “joes.” The fractional denominations were 4 escudo and 2 escudo coins of the same origin. The 4 escudo (6,400 reis) coin, or “half joe,” was one of the most commonly used coins in the late colonial period. The moidore was another Portuguese gold coin, 4,000 reis in denomination. That these coins were being used as a medium of exchange in the colonies is not so peculiar as it might appear. As Raphael Solomon (1976, p. 37) noted in a study of the period, these coins “played a very active part in international commerce, flowing in and out of the major seaports in both the Eastern and Western Hemispheres.” In the late colonial period, the mid-Atlantic colonies began selling wheat and flour to Spain and Portugal “for which in return, they get hard cash” (Lydon, 1965; Virginia Gazette, January 12, 1769; Brodhead, 1853, vol. 8, p. 448).

The Spanish dollar and its fractional parts were, in McCusker’s (1978, p. 7) words, “the premier coin of the Atlantic world in the seventeenth and eighteenth centuries.” Well known and widely circulated throughout the world, its preeminence in colonial North America accounts for the fact that the United States uses dollars, rather than pounds, as its unit of account. The Spanish pistole was the Spanish gold coin most often encountered in America. While these coins were the most common, many others also circulated there (Solomon, 1976; McCusker, 1978, pp. 3-12).

Alongside the well-known gold and silver coins were various copper coins, most notably the English half-pence, that served as small change in the colonies. The pistareen, a small silver coin of base alloy, was also commonly used as change. Footnote //

None of these foreign specie coins were denominated in local currency units, however. One needed a rule to determine what a particular coin, such as a Spanish dollar, was worth in the £., s., and d. of local currency. Since foreign specie coins were in circulation long before any of the colonies issued paper money, when the rating was set on these coins it amounted to picking a numeriare for the economy; that is, it defined what one meant by a pound of local currency. The ratings attached to individual coins were not haphazard: they were designed to reflect the relative weight and purity of the bullion in each coin, as well as the ratio of gold to silver prices prevailing in the wider world.

In the early years of colonization, these coin values were set by the colonial assemblies (Nettels, 1934, chap. 9; Solomon, 1976, pp. 28-29; John Hemphill, 1964, chapter 3). In 1700, Pennsylvania passed an act raising the rated value of its coins, causing the Governor of Maryland to complain to the Board of Trade of the difficulties this created in Maryland. He sought the Board’s permission for Maryland to follow suit. When the Board investigated the matter, it concluded that the “liberty taken in many of your Majesty’s Plantations, to alter the rates of their coins as often as they think fit, does encourage an indirect practice of drawing the money from one Plantation to another, to the undermining of each other’s trade.” In response, they arranged for the disallowance of the Pennsylvania act, and a royal proclamation to put an end to the practice. Footnote //

Queen Anne’s proclamation, issued in 1704, prohibited a Spanish dollar of 17½ dwt. from passing for more than 6 s. in the colonies. Other current foreign silver coins were rated proportionately, and similarly prohibited from circulating at a higher value. This particular rating of coins became known as “proclamation money.” It might seem peculiar that the proclamation did not dictate that the colonies adopt the same ratings as prevailed in England. The Privy Council, however, had incautiously approved a Massachusetts act passed in 1697 rating Spanish dollars at 6 s., and attorney general Edward Northey felt the act could not be nullified by proclamation. This induced the Board of Trade to adopt the rating of the Massachusetts act. Footnote //

Had the proclamation been put into operation, its effects would have been extremely deflationary, because in most colonies coins were already passing at higher rates. When the proclamation reached America, only Barbados attempted to enforce it. In New York, Governor Lord Cornbury suspended its operation, and wrote the Board of Trade that he could not enforce it in New York while it was being ignored in neighboring colonies, as New York would be “ruined beyond recovery” if he did so (Brodhead, 1853, vol. 4, pp. 1131-1133; Brock, 1975, chapter 4).

A chorus of such responses led the Board of Trade to take the matter to Parliament, in hopes of enforcing a uniform compliance throughout America (House of Lords, 1921, pp. 302-3). On April 1, 1708, Parliament passed “An Act for ascertaining the Rates of foreign Coins in her Majesty’s Plantations in America” (Ruffhead, vol. 4, pp. 324-5). The act reiterated the restrictions embodied in Queen Anne’s Proclamation, and declared that anyone “accounting, receiving, taking, or paying the same contrary to the Directions therein contained, shall suffer six Months Imprisonment . . . and shall likewise forfeit the Sum of ten Pounds for every such Offence . . .”

The “Act for ascertaining the Rates of foreign Coins” never achieved its desired aim. In the colonies, it was largely ignored, and business continued to be conducted just as if the act had never been passed. Pennsylvania, it was true, went though a show of complying, but even that lapsed after a while (Brock, 1975, chapter 4). What the act did do, however, was to push the process of coin rating into the shadows, since it was no longer possible to address it in an open way by legislative enactment. Laws that passed through colonial legislatures (certain charter and proprietary colonies excepted) were routinely reviewed by the Privy Council, and if found to be inconsistent with British law, were declared null and void.

Two avenues remained open to alter coin ratings – private agreements among merchants that would not be subject to review in London, and a legislative enactment so stealthy as to slip through review unnoticed. New York was the first to succeed using stealth. In November 1709 it emitted bills of credit “for Tenn thousand Ounces of Plate or fourteen Thousand Five hundred & fourty five Lyon Dollars” (Lincoln, 1894, vol. 1, chap. 207, pp. 695-7). The Lyon dollar was an obscure silver coin that had escaped being explicitly mentioned in the enumeration of allowable values that had accompanied Queen Anne’s proclamation. Since 15 years previously New York had rated the Lyon dollar at 5 s. 6 d., it was generally supposed that that rating was still in force (Solomon, 1976, p. 30). The value of silver implied in the law’s title is 8 s. an ounce - a value higher than allowed by Parliament. Until 1723, New York’s emission acts contained clauses designed to rate an ounce of silver at 8 s. The act in 1714, for instance, tediously enumerated the denominations of the bills to be printed, in language such as “Five Hundred Sixty-eight Bills, of Twenty-five Ounces of Plate, or Ten Pounds value each” (Lincoln, 1894, vol. 1, chap. 280, pp. 819). When the Board of Trade finally realized what New York was up to, it was too late, for the earlier laws had already been confirmed. When the Board wrote Governor Hunter to complain, he replied, in part, “Tis not in the power of men or angels to beat the people of this Continent out of a silly notion of their being gainers by the Augmentation of the value of Plate” (Brodhead, vol. 5, p. 476). These colony laws were still thought to be in force in the late colonial period. Gaine’s New York Pocket Almanack for 1760 states that “Spanish Silver . . . here ‘tis fixed by Law at 8 s. per Ounce, but is often sold and bought from 9 s. to 9 s. and 3 d.”

 In 1753, Maryland also succeeded using stealth, including revised coin ratings inconsistent with Queen Anne’s proclamation in “An Act for Amending the Staple of Tobacco, for Preventing Fraud in His Majesty’s Customs, and for the Limitation of Officer’s Fees” (McCusker, 1978, p. 192).

The most common subterfuge was for a colony’s merchants to meet and agree on coin ratings. Once the merchants agreed on such ratings, the colonial courts appear to have deferred to them, which is not surprising in light of the fact that many judges and legislators were drawn from the merchants’ ranks (e.g. Horle, 1991). These private agreements effectively nullified not only the act of Parliament, but also local statutes, such as those rating silver in New York at 8 s. an ounce. Records of many such agreements have survived. Footnote // There is also testimony that these agreements were commonplace. Lewis Morris remarked that “It is a common practice . . . [for] the merchants to put what value they think fit upon Gold and Silver coynes current in the Plantations.” When the Philadelphia merchants published a notice in the Pennsylvania Gazette of September 16, 1742 enumerating the values they had agreed to put on foreign gold and silver coins, only the brazenness of the act came as a surprise to Morris. “Tho' I believe by the merchants private Agreements amongst themselves they have allwaies done the same thing since the Existence of A paper currency, yet I do not remember so publick an instance of defying an act of parliament” (Morris, 1993, vol. 3, pp. 260-262, 273). These agreements, when backed by a strong consensus among merchants, seem to have been effective. Decades later, Benjamin Franklin (1959, vol. 14, p. 232) recollected how the agreement that had offended Morris “had a great Effect in fixing the Value and Rates of our Gold and Silver.”

After the New York Chamber of Commerce was founded in 1768, merchant deliberations on these agreements were recorded. During this period, the coin ratings in effect in New York were routinely published in almanacs, particularly Gaine’s New-York pocket almanac. When the New York Chamber of Commerce resolved to change the rating of coins, and the minimum allowable weight for guineas, the almanac values changed immediately to reflect those adopted by the Chamber (Stevens, 1867, pp. 56-7. 69). Footnote //


The coin rating table above, reproduced from The New-York Pocket Almanack for the Year 1771, shows how coin-rating worked in practice in the late colonial period. (Note the reference to the deliberations of the Chamber of Commerce.) It shows, for instance, that if you tendered a half joe in payment of debt in Pennsylvania, you would be credited with having paid £3 Pennsylvania money. If the same half joe were tendered in payment of a debt in New York, you would be credited with having paid £ 3 4 s. New York money. In Connecticut, it would have been £2 8 s. Connecticut money. Footnote //

The colonists possessed no central bank, and colonial treasurers, however willing they might have been to exchange paper for specie, sometimes found themselves without the means to do so. That these coin ratings were successfully maintained for decades on end was a testament to the public’s faith in the bills of credit, which made them willing to voluntarily exchange them for specie at the established rate. Writing in 1786, and attempting to explain why the paper money in colonial times had retained its value, “Eugenio” attributed its success to the fact that it possessed what he called “the means of instant realization at value.” This awkward phrase signified it was instantly convertible, at par. “Eugenio” went on to explain why.

It is true that government did not raise a sum of coin and deposit the same in the treasury to exchange the bills on demand; but the faith of the government, the opinion of the people, and the security of the fund formerly by a well-timed and steady policy, went so hand in hand and so concurred to support each other, that the people voluntarily and without the least compulsion threw all their gold and silver, not locking up a shilling, into circulation concurrently with the bills; whereby the whole coin of the government became forthwith upon an emission of paper, a bank of deposit at every man's door for the instant realization or immediate exchange of his bill into gold or silver. This had a benign and equitable, a persuasive, a satisfactory, and an extensive influence. If any one doubted the validity or price of his bill, his neighbor immediately removed his doubts by exchanging it without loss into gold or silver. If any one for a particular purpose needed the precious metals, his bill procured them at the next door, without a moment's delay or a penny's diminution. So high was the opinion of the people raised, that often an advance was given for paper on account of the convenience of carriage. In the market as well as in the payment of debts, the paper and the coin possessed a voluntary, equal, and concurrent circulation, and no special contract was made which should be paid or whether they should be received at a difference. By this instant realization and immediate exchange, the government had all the gold and silver in the community as effectually in their hands as if those precious metals had all been locked up in their treasury. By this realization and exchange they could extend credit to any degree it was required. The people could not be induced to entertain a doubt of their paper, because the government had never failed them in a single instance, either in war or in peace (New Jersey Gazette, January 30, 1786).

Means of Payment – Private debt instruments

This leaves private debt instruments, such as bank notes, bills of exchange, notes of hand, and shop notes. It is sometimes asserted that there were no banks in colonial America, but this is something of an overstatement. There were several experiments made and several embryonic private banks actually got notes into circulation. Andrew McFarland Davis devoted an entire volume to banking in colonial New England (Davis, 1970, vol. 2). Perhaps the most successful bank of the era was established in South Carolina in 1731. It apparently issued notes totaling £50,000 South Carolina money and operated successfully for a decade. Footnote // However, the banks that did exist did not last long enough or succeed in putting enough notes in circulation for us to be especially concerned about them.

Bills of exchange were similar to checks. A hypothetical example will illustrate how they functioned. The process of creating a bill of exchange began when someone obtained a balance on account overseas (in the case of the colonies, that place was usually London). Suppose a Virginia tobacco producer consigned his tobacco to be sold in England, with the sterling proceeds to remain temporarily in the hands of a London merchant. The Virginia planter could then draw on those funds, by writing a bill of exchange payable in London. Suppose further that the planter drew a bill of exchange on his London correspondent, and sold it to a Virginia merchant, who then transmitted it to London to pay a balance due on imported dry goods. When the bill of exchange reached London, the dry goods wholesaler who received it would call on the London merchant holding the funds in order to receive the payment specified in the bill of exchange.

Bills of exchange were widely used in foreign trade, and were the preferred and most common method for paying debts due overseas. Because of the nature of the trade they financed, bills of exchange were usually in large denominations. Also, because bills of exchange were drawn on particular people or institutions overseas, there was an element of risk involved. Perhaps the person drawing the bill was writing a bad check, or perhaps the person on whom the bill was drawn was himself a deadbeat. One needed to be confident of the reputations of the parties involved when purchasing a bill of exchange. Perhaps because of their large denominations and the asymmetric information problems involved, bills of exchange played a limited role as a medium of exchange in the inland economy (McCusker, 1978, especially pp. 20-21).

Small denomination IOUs, called “notes of hand” were widespread, and these were typically denominated in local currency units. For the most part, these were not designed to circulate as a medium of exchange. When someone purchased goods from a shopkeeper on credit, the shopkeeper would generally get a “note of hand” as a receipt. In the court records in the Connecticut archives, one can find the case files for countless colonial-era cases where an individual was sued for nonpayment of a small debt. Footnote // The court records generally include a note of hand entered as evidence to prove the debt. Notes of hand sometimes were proffered to third parties in payment of debt, however, particularly if the issuer was a person of acknowledged creditworthiness (Mather, 1691, p. 191). Some individuals of modest means created notes of hand in small denominations and attempted to circulate them as a medium of exchange; in Pennsylvania in 1768, a newspaper account stated that 10% of the cash offered in the retail trade consisted of such notes (Pennsylvania Chronicle, October 12, 1768; Kimber, 1998, p. 53). Indeed, most of the private banking schemes, such as the Massachusetts merchants’ bank, the New Hampshire merchants’ bank, the New London Society, and the Land Bank of 1740 were modeled on private notes of hand, and each consisted of an association designed to circulate such notes on a large scale. For the most part, however, notes of hand lacked the universal acceptability that would have unambiguously qualified them as money.

Shop notes were “notes of hand” of a particular type, which seem to have been especially widespread in colonial New England. The twentieth-century analogue to shop notes would be scrip issued by an employer that could be used for purchases at the company store. Footnote // Shop notes were I.O.U.'s of local shopkeepers, redeemable through the shopkeeper. Such an I.O.U. might promise, for example, £6 in local currency value, half in money and half in goods (Weeden, 1891, vol. 2, p. 589; Ernst, 1990). Hugh Vance described the origins of shop notes in a 1740 pamphlet:

. . . by the best Information I can have from Men of Credit then living, the Fact is truly this, viz. about the Year 1700, Silver-Money became exceedingly scarce, and the Trade so embarassed, that we begun to go into the Use of Shop-Goods, as the Money. The Shopkeepers told the Tradesmen, who had Draughts upon them from the Merchants for all Money, that they could not pay all in Money (and very truly) and so by Degrees brought the Tradesmen into the Use of taking Part in Shop-Goods; and likewise the Merchants, who must always follow the natural Course of Trade, were forced into the Way of agreeing with Tradesmen, Fishermen, and others; and also with the Shopkeepers, to draw Bills for Part and sometimes for all Shop-Goods (Vance, 1740, CCR III, pp. 390-91).

Vance's account seems accurate in all respects save one. Merchants played an active role in introducing shop notes into circulation. By the 1740's shop notes had been much abused, and it was disingenuous of Vance (himself a merchant) to suggest that merchants had had the system thrust upon them by shopkeepers. Merchants used shop notes to expedite sales and returns. The merchant might contact a shopkeeper and a shipbuilder. The shipbuilder would build a ship for the merchant, the ship to be sent to England and sold as a way of making returns. In exchange the merchant would provide the builder with shop notes and the shopkeeper with imported goods. The builder used the shop notes to pay his workers. The shop notes, in turn, were redeemed at the shop of the shopkeeper when presented to him by workers (Boston Weekly Post-boy, December 8, 1740). Thomas Fitch tried to interest an English partner in just such a scheme in 1710.

Realy it's extream difficult to raise money here, for goods are generally Sold to take 1/2 money & 1/2 goods again out of the buyers Shops to pay builders of Ships [etc?] which is a great advantage in the readier if not higher sale of goods, as well as that it procures the Return; Wherefore if we sell goods to be paid in money we must give long time or they will not medle (Fitch, 1711, to Edward Warner, November 22, 1710).

Like other substitutes for cash, shop notes were seldom worth their stated values. A 1736 pamphlet, for instance, reported wages to be 6s in bills of credit, or 7s if paid in shop notes (Anonymous, 1736, p. 143). One reason shop notes failed to remain at par with cash is that shopkeepers often refused to redeem them except with merchandise of their own choosing. Another abuse was to interpret money to mean British goods; half money, half goods often meant no money at all. Footnote //            


Colonial bills of credit were controversial when they were first issued, and have remained controversial to this day. Those who have wanted to highlight the evils of inflation have focused narrowly on the colonies where the bills of credit depreciated most dramatically – those colonies being New England and the Carolinas, with New England being a special focus because of the wealth of material that exists concerning New England history. When Hillsborough drafted a report for the Board of Trade, intended to support the abolition of legal tender paper money in the colonies, he rested his argument on the inflationary experiences of these colonies (printed in Whitehead, 1885, vol. IX, pp. 405-414). Those who have wanted to defend the use of bills of credit in the colonies have focused on the middle colonies, where inflation was practically nonexistent. This tradition dates back at least to Benjamin Franklin (1959, vol. 14, pp. 77-87), who drafted a reply to the Board of Trade’s report in an effort to persuade Parliament to repeal of the Currency Act of 1764. Nineteenth-century authors, such as Bullock (1969) and Davis (1970), tended to follow Hillsborough’s lead, whereas twentieth-century authors, such as Ferguson (1953) and Schweitzer (1987), followed Franklin’s.

Changing popular attitudes towards inflation have helped to rehabilitate the colonists. Whereas inflation in earlier centuries was rare, and even the mild inflation suffered in England between 1797 and 1815 was sufficient to stir a political uproar, the twentieth century has become inured to inflation. Even in colonial New England between 1711 and 1749, which was thought to have done a disgraceful job in managing its bills of credit, peacetime inflation was only about 5% per annum. Inflation during King George’s War was about 35% per annum. Footnote //

Nineteenth-century economists were guilty of overgeneralizing based on the unrepresentative inflationary experiences and associated debtor-creditor conflicts that occurred in a few colonies. Some twentieth-century economists, however, have swung too far in the other direction by generalizing on the basis of the success of the system in the middle colonies, and by attributing the benign outcomes there to the fundamental soundness of the system and its sagacious management. It would be closer to the truth, I believe, to note that the virtuous restraint exhibited by the middle colonies was imposed upon them. Emissions in these colonies were sometimes vetoed by royal authorities, and frequently stymied by instructions issued to royal or proprietary governors. The success of the middle colonies owes much to the simple fact that they did not exert themselves in war to the extent that their New England neighbors did, and that they were not permitted to freely issue bills of credit in peacetime.

A recent controversy has developed over the correct answer to the question – Why did some bills of credit depreciate, while others did not? Many early writers took it for granted that the price level in a colony would vary proportionally with the number of bills of credit the colony issued. This assumption was mocked by Ernst (1973, chapter 1), and devastated by West (1978). West performed simple regressions relating the quantity of bills of credit outstanding to price indices where such data exist. For most colonies, he found no correlation between these variables. This was particularly striking because in most of the middle colonies there was a dramatic increase in the quantity of bills of credit outstanding during the French and Indian war, and a dramatic decrease afterwards. Yet this large fluctuation seemed to have little if any effect on prices. Only in New England in the first half of the eighteenth century did there seem to be a strong correlation between bills of credit outstanding and prices and exchange rates.

Seizing on these results, Bruce Smith suggested that they disproved the quantity theory of money, and provided evidence in favor of an alternative theory of money, based on theoretical models of Wallace and Sargent, that he termed the “backing theory.” Footnote // According to Smith (1985a, p. 534), the redemption provisions enacted when bills of credit were introduced into circulation on tax and loan funds were what prevented them from depreciating. “Just as the value of privately issued liabilities depends on the issuers’ balance sheet,” he wrote, “the same is true for government liabilities. Thus issues of money which are accompanied by increases in the (expected) discounted present value of the government’s revenues need not be inflationary.” One obvious problem with this theory is that the New England bills of credit which did depreciate were issued in exactly the same way. Smith’s answer was that the New England colonies administered their tax and loan funds poorly and New England’s poor administration accounted for the inflation experienced there.

Others who did not wholly agree with Smith – especially his sweeping refutation of the quantity theory – nonetheless pointed to the redemption provisions in explaining why bills of credit often retained their value (Wicker, 1985; Bernholz, 1988; Calomiris, 1988; Sumner, 1993). Of those who assigned credit to the redemption provisions, however, only Smith grappled with the key question; namely, why essentially identical redemption provisions failed to prevent inflation elsewhere.

Crediting careful administration of tax and loan funds for the steady value of some colonial currencies, and haphazard administration for the depreciation of others looks superficially appealing. The experiences of Pennsylvania and Rhode Island, generally thought to be the most and least successful issuers of colonial bills of credit, fit the hypothesis nicely. However, when one examines other cases, the hypothesis breaks down. Connecticut was generally credited with administering her bills of credit very carefully, yet they depreciated in lockstep with those of her New England neighbors for forty years (Brock, 1975, pp. 43-47). Virginia’s bills of credit retained their value, even though Virginia’s colonial treasurer was discovered to have embezzled a sum equal to nearly half of Virginia’s total outstanding bills of credit, and returned them to circulation (Michener, 1987, p. 247). North Carolina’s bills of credit held their value well in the late colonial period, despite tax administration so notoriously corrupt it led to an armed revolt (Michener, 1987, pp. 248-9, Ernst, 1973, p. 221).

A competing explanation has been offered by Michener (1987, 1988), Brock (1992), and McCallum (1992). According to this explanation, the coin rating system operating in the colonies meant they were effectively on a specie standard with a de facto fixed par of exchange. Provided emissions of paper money did not exceed the amount needed for domestic purposes (“normal real balances,” in McCallum’s terminology) some specie would remain in circulation, prices would remain stable, and the fixed par could be maintained. Where emissions exceeded this bound, specie would disappear from circulation, and exchange rates would float freely, no longer tethered to the fixed par. Further emissions would cause inflation. Footnote // This was said to account for inflation in New England after 1712, where specie did, in fact, completely disappear from circulation (Hutchinson, 1936, vol. 2, p. 154; Michener, 1987, pp. 288-94).

The debate over why some colonial bills of credit depreciated, while others did not has spilled over into another related question: how much cash [i.e., paper money plus specie] circulated in the American colonies, and how much was in bills of credit, and how much was in specie? After all, the fixed exchange rate story favored by the quantity theorists would suggest that emissions of bills of credit ought to be offset by specie outflows, provided other things were equal. Clearly, if there was hardly any specie anywhere in colonial America, this explanation could not be true.

Determining how much cash circulated in the colonies is no easy matter, because the amount of specie in circulation is so hard to determine. The issue is further complicated by the fact that the total amount of cash in circulation fluctuated considerably from year to year, depending on such things as the demand for colonial staples and the magnitude of British military expenditure in the colonies (Sachs, 1957; Hemphill, 1964). These fluctuations in the money supply are compatible with the quantity theory of money if periods when money was scarce were also periods when interest rates were high, as is also suggested by the historical record. Footnote //

Not only was the money supply variable – so too was money demand. War seems to have significantly influenced the demand for money. During peacetime, most transactions were handled by means of book credit. During major wars, however, many men served in the militia. Men in military service were paid in cash and taken far from the community in which their creditworthiness was commonly known, reducing both their need for book credit and their ability to obtain it. Moreover, it would have to give a shopkeeper pause, and discourage him from advancing book credit, to consider the real possibility that even his civilian customers might find themselves in the militia in the near future, and gone from the local community, possibly forever. In each of the major colonial wars, there is evidence suggesting an increase in cash real balances that could be attributed to the war’s impact on the book credit system. These topics are important, but have not been studied in depth. My purpose here is not to attempt to establish these facts beyond dispute, but merely to suggest the danger of presuming per capita real cash balances were constant over time, as many economists seem inclined to do.

The mix of bills of credit and specie in circulation was also highly variable. In the middle colonies – and much of the most contentious debate involves the middle colonies – the quantity of bills of credit in circulation was very modest (both absolutely and in per-capita terms) before the French and Indian war. The quantity exploded to cover military expenditures during the French and Indian war, and then fell again following 1760, until by the late colonial period, the quantity outstanding was once again very modest. Pennsylvania’s experience is not atypical of the middle colonies. In 1754, on the eve of the French and Indian war, only £81,500 in Pennsylvania bills of credit were in circulation. At the height of the conflict, in 1760, this had increased to £446,158, but by 1773, the sum had been reduced to only £135,006 (Brock, 1992, Table 6). Any conclusion about the importance of bills of credit in the colonial money supply has to be carefully qualified because it will depend on the year in question.

Traditionally, economic historians have focused their attention on the eve of the Revolution, with a special focus on 1774, because of Alice Hanson Jones’s extensive study of 1774 probate records. Even with the inquiry dramatically narrowed, estimates have varied widely. McCusker and Menard (1985, p. 338), citing Alexander Hamilton for authority, estimated that just before the Revolution the “current cash” totaled 30 million dollars. Of the 30 million dollars, Hamilton said 8 million consisted of specie (27%). On the basis of this authority, Smith (1985a, p. 538; 1988, p. 22) has maintained that specie was a comparatively minor component in the colonial money supply.

Hamilton was arguing in favor of banks when he made this oft-cited estimate, and his purpose in presenting it was to show that the circulation was capable of absorbing a great deal of paper money, which ought to make us wonder whether his estimate might have been biased by his political agenda. Whether biased, or simply misinformed, Hamilton clearly got his facts wrong.

All estimates of the quantity of colonial bills of credit in circulation – including those of Brock (1975, 1992) that have been relied on by recent authors of all sides of the debate – lead inescapably to the conclusion that in 1774 there were very few bills of credit left outstanding, nowhere near the 22 million dollars implied by Hamilton. Calculations along these lines were first performed by Ratchford. Ratchford (1941, pp. 24-25) estimated the total quantity of bills of credit outstanding in each colony on the eve of the Revolution, and then added the local £., s., and d. of all the colonies (a true case of adding apples and oranges), converted to dollars by valuing dollars at 6 s. each, and concluded that the total was equal to about $5.16 million.

Ratchford’s method of summing local pounds and then converting to dollars is incorrect because local pounds did not have a uniform value across colonies. Since dollars were commonly rated at more than 6 s., his procedure resulted in an inflated estimate. We can correct this error by using McCusker’s (1978) data on 1774 exchange rates to convert local currency to sterling for each colony, obtain a sum in pounds sterling, and then convert to dollars using the rated value of the dollar in pounds sterling, 4½ s. Four and a half s. was very near the dollar’s value in London bullion markets in 1774, so no appreciable error arises from using the rated value. Doing so reduces Ratchford’s estimate to $3.42 million. Replacing Ratchford’s estimates of currency outstanding in New York, New Jersey, Pennsylvania, Virginia, and South Carolina with apparently superior data published by Brock (1975, 1992) reduces the total to $2.93 million.Even allowing for some imprecision in the data, this simply can’t be reconciled with Hamilton’s apparently mythical $22 million in paper money!

How much current cash was there in the colonies in 1774? Alice Hanson Jones’s extensive research into probate records gives an independent estimate of the money supply. Jones (1980, table 5.2) estimated that per capita cash-holding in the middle colonies in 1774 was £1.8 sterling, and that the entire money supply of the thirteen colonies was slightly more than 12 million dollars. Footnote // McCallum (1992) proposed another way to estimate total money balances in the colonies. McCallum started with the few episodes where historians generally agree paper money entirely displaced specie, making the total money supply measurable. He used money balances in these episodes as a basis for estimating money balances in other colonies by deriving approximate measures of the variability of money holdings over colonies and over time. Given the starkly different methodologies, it is remarkable that McCallum’s approach yields an answer practically indistinguishable from Jones’s. Footnote //

Various contemporary estimates, including estimates by Pelatiah Webster, Noah Webster, and Lord Sheffield, also suggest the total colonial money supply in 1774 was ten to twelve million dollars, mostly in specie (Michener 1988, p. 687; Elliot, 1845, p. 938). If we tentatively accept that the total money supply in the American colonies in 1774 was about twelve million dollars, and that only three million dollars worth of bills of credit remained outstanding, then fully 75% of the prewar money supply must have been in specie.

Even this may be an underestimate. Colonial probate inventories are notoriously incomplete, and the usual presumption is that Jones’s estimates are likely to be downwardly biased. Two examples not involving money illustrate the general problem. In Jones’s collection of inventories, over 20% of the estates did not include any clothes (Lindert, 1981, p. 657). In an independent survey of Surry County, Virginia probate records, Anna Hawley (1987, pp. 27-8) noted that only 34% of the estates listed hoes, despite the fact that the region’s staple crops, corn and tobacco, had to be hoed several times a year.

In Jones’s 1774 database an amazing 70% of all estates were devoid of money. While the widespread use of credit made it possible to do without money in most transactions, it is likely some estates contained cash that does not appear in probate inventories. Peter Lindert (1981, p. 658) surmised “cash was simply allocated informally among survivors even before probate took place.” McCusker and Menard (1985, p. 338, fn. 14) concurred, noting “cash would have been one of the things most likely to have been distributed outside the usual probate proceedings.” If Jones actually underestimated cash holdings in 1774, the implication would be that more than 75% of the prewar money supply must have been specie.

That most of the cash circulating in the colonies in 1774 must have been specie seems like an inescapable conclusion. The issue has been clouded, however, by the existence of many contradictory and internally inconsistent estimates in the literature. By using them to defend his contention that specie was relatively unimportant, Smith (1988, p. 22) drew attention to these estimates.

The first such estimate was made by Roger Weiss (1970, p. 779), who computed the ratio of paper money to total money in the middle colonies, using Jones’s probate data to estimate total money balances, as has been done here, yet arrived at a considerably smaller fraction of specie in the money supply. There is a simple explanation for this puzzling result: Weiss, whose article was published in 1970, based his analysis on Jones’s 1968 dissertation rather than her 1980 book. In her dissertation, Jones (1968, Tables 3&4, pp. 50-51) estimated the money supply in the three middle colonies at £2.0 local currency per free white capita. Since £1 local currency was worth about £0.6 sterling, Weiss began with an estimated total money supply of £1.2 sterling per free white capita (equal to £1.13 per capita), rather than Jones’s more recent estimate of £1.8 sterling per capita.

Another authority is Letwin (1981, p. 467), who estimated that more than 60% of the money supply of Pennsylvania in 1775 was paper. Letwin used the Historical Statistics of the United States for his money supply data, and a casual back-of-the-envelope estimate that nominal balances in Pennsylvania were £700,000 in 1775 to conclude that 63% of Pennsylvania’s money supply was paper money. However, the data in Historical Statistics of the United States are known to be incorrect: Using Letwin’s back-of-the-envelope estimate, but redoing the calculation using Brock’s estimates of paper money in circulation, gives the result that in 1775 only 45.5% of Pennsylvania’s money supply was paper money; for 1774 the figure is 31%. Footnote //

That good faith attempts to estimate the stock of specie in the colonies in 1774 have given rise to such wildly varying and inconsistent estimates gives some indication of the task that remains to be accomplished. Many hints about how the specie stock varied over time in colonial America can be found in newspapers, legislative records, pamphlets and correspondence. Organizing those fragments of evidence and interpreting them is going to require great skill, and will probably have to be done colony by colony. In addition, if the key to the purchasing power of colonial currency lies in the ratings attached to coins, as I personally believe it does, then more effort is going to have to be paid in the future to tracking how those ratings evolved over time. Our knowledge at the moment is very fragmentary, probably because the politics of paper money has so engrossed the attention of historians that few people have attached much significance to coin ratings.


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Citation: Michener, Ron. "Money in the American Colonies". EH.Net Encyclopedia, edited by Robert Whaples. June 8, 2003. URL