Search

The purpose of this paper is to convince the reader that the Continental dollar was a zero-interest bearer bond and not a fiat currency--thereby overturning 230 years of scholarly interpretation; to show that the public and leading Americans knew and acted on this fact, and to illustrate the ideal performance of the Continental dollar as a zero-interest bearer bond. The purpose of establishing the ideal performance is to create a benchmark against which empirical measures of depreciation can be evaluated in future papers.

The purpose of Chapter 3 is to convince the reader that the Continental dollar was a zero-interest bearer bond and not a fiat currency—thereby overturning 230 years of scholarly interpretation; to show that the public and leading Americans knew and acted on this fact, and to illustrate the ideal performance of the Continental dollar as a zero-interest bearer bond. The purpose of establishing the ideal performance is to create a benchmark against which empirical measures of depreciation can be evaluated.

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.

The British North American colonies were the first western economies to rely on legislative-issued fiat paper monies as their principal internal media of exchange. This system arose piecemeal. It was monetary experimentation on a grand scale. In the absence of banks and treasuries that exchanged local fiat monies at fixed rates for specie monies (outside monies) on demand, colonial governments experimented with other ways to anchor their fiat monies to real values in the economy. These mechanisms included tax-redemption, interest-bearing notes, land-backed mortgage loans, sinking funds, and legal tender laws. The structure and performance of these mechanisms are explained.

Europeans stopped using servitude to finance passage to America sometime in the early nineteenth century, but exactly when and why immigrant servitude disappeared is a mystery. Hypotheses abound, but no consensus has emerged nor have scholars tested hypotheses. In this study, quantitative evidence for the final sixty years of immigrant servitude establishes when and why it disappeared. Servitude did not end because of insufficient demand, legal restrictions, or declines in passage fares. It ended because superior methods of financing migration developed. Chance historical events, however, determined the exact timing of the end. In North America, organized markets for European immigrant servants flourished for two centuries. The resilience of these markets is quite remarkable. They survived the turbulent events of the seventeenth and eighteenth centuries, including frequent and severe interruptions to transatlantic trade caused by wars and depressions, competition in America from slave and native-born free labor, and the change in legal sovereignty caused by the American Revolution. During the eighteenth century, roughly one-half of the Europeans landing in British North America paid for their passage by selling contracts on their future

The impact of Queen Anne′s War on the servant market is measured using evidence from 1440 servants embarking at Liverpool. War is associated with higher migration costs, lower emigration, and shifts in the distribution of servant ages, gender, destinations, and recruiting agents. Wartime servant supplies fell, driving down contract lengths and raising servant costs. Except for teenage females, the colonial demand for servants and the cross-price effect on the demand for slaves are estimated to be elastic. Queen Anne′s War was the short-run catalyst that drove Chesapeake planters to shift to slave labor.

An alternative history of the Continental dollar is constructed from original sources and tested against evidence on prices and exchange rates. The Continental dollar was a zero-interest bearer bond, not a pure fiat currency. The public was promised redemption at face value in specie at fixed future dates. When time-discounting (rational bond pricing) is separated from depreciation, little depreciation occurred before 1779. In 1779, and again in 1780, Congress passed ex post facto laws altering Continental-dollar maturity dates. Because these new dates were not fiscally feasible, Congress' commitment to the Continental dollar lost credibility. Depreciation and collapse followed shortly thereafter.

Remittances of Continental Dollars to the national treasury from each state by year from 1779 through 1789 are used to determine state compliance with congressional resolutions regarding Continental-Dollar redemption. From 1781 through 1789, the states as a whole stayed well ahead of the remittance schedule set by Congress in 1779. Individual state compliance, however, varied considerably. By the time Congress changed redemption requirements with the Funding Act of 4 August 1790, a majority of the net new Continental Dollars ever emitted by Congress had already been redeemed by the states and remitted to the national treasury to be burned.

Education clauses in 3,478 immigrant servant contracts are used to measure the incidence of schooling versus informal instruction by location, age, and sex. The proportion of servants receiving education was high, over 20 percent being taught outside of schools. Education expanded between 1770 and 1800 through a net increase in schooling rather than because of a substitution of schooling for informal instruction. In the 1770s formal schooling in rural areas lagged behind that in urban, but achieved parity by 1800. Little difference in education was found based on gender.

The incidence of fatherlessness among English emigrant servants was measured using contracts recorded in London between 1682 and 1686. This incidence was relatively high and systematically related to the servant's age, gender, county of origin, occupation, and father's occupation. Many emigrant servants were youths who had lost their fathers and lacked alternative support in England. Fatherlessness helps explain why the short-run supply of emigrant servants was relatively inelastic, and why some unskilled servants continued to migrate to America in spite of competition from slave labor. Tn 1725 William Moraley's father, a clockmaker in Newcastle, died. He left William only 20 shillings of his substantial estate, which was not enough for William, who had been apprenticed to his father, to complete his apprenticeship with another clockmaker or establish himself in business. With 12 shillings in his pocket, William went to London, where he unsuccessfully sued his mother and step-father to recover more of his father's estate. At a London tavern in 1729, facing poverty and perhaps starvation, he accepted a servant contract. The labor recruiter took William before the Mayor to swear that he was unmarried and obligated to no other indenture and then to a stationer to draw up and sign the indenture. Within the week William was shipped to America.' This story suggests that examining a servant's family circumstances

Victory in the War for Independence brought a vast amount of land within the grasp of the new American nation -- territory stretching from the Appalachian Mountains to the Mississippi River between the southern shores of the Great Lakes and Spanish Florida. These lands were initially claimed by several states. Pressure from states without land claims led to these lands being transferred to the national government. The land so transferred was to be used to pay for the revolution. By 1802 this national public domain totaled roughly 220 million acres of saleable land that was worth about $215 million dollars at constant-dollar long-run equilibrium land prices. A public finance approach is used to explain the choices facing the government regarding how to use its lands to pay for the revolution. The first choice -- directly swapping land for war debt -- was superseded by the second choice, namely "backing" the national debt with its land assets and pledging future proceeds from land sales to be used by law only to redeem the principal of the national debt and nothing else. This land policy helped stabilize the national government's financial position and put the U.S. on a sound credit footing by the mid-1790s.

Resources to fight the War for Independence from Great Britain (1775-1783) were to be provided to the U.S. Congress by the individual states based on each state's population share in the united colonies. Congressional spending, however, largely flowed to where the theater of war was located. Thus a geographic imbalance in revenue and spending arose. Because much of the spending was through issuing paper money, geographic variation in inflation as well as in general economic activity resulted. This in turn affected the relative strength of each state's attachment to the union with ramifications on maintaining political unity.

The British North American colonies were the first western economies to rely on legislature-issued fiat paper money as their principal internal medium of exchange. This system arose piecemeal across the colonies making the paper money creation story for each colony unique. It was true monetary experimentation on a grand scale. The creation story for Maryland, perhaps the most unique among the colonies, is analyzed to evaluate how market forces, media influences, and the power of various constituents combined to shape its particular paper money system.

Congress financed the American Revolution by issuing paper Continental Dollars. The story of the Continental Dollar is familiar to all -- a lot were issued and hyper-inflation ensued. Emissions were permanently discontinued in 1779. Thereafter, they became worthless and were forgotten. They had no impact on subsequent public finance. The veracity of the last part of this story is challenged here. Evidence is presented to establish that the disposition of the Continental Dollar remained an open question well into the 1790s. Evidence is also presented to establish the exact time path of the retirement of Continental Dollars between 1779 and 1790.

Paper money has often been controversial and misunderstood. Why it has value, why that value changes over time, how it influences economic activity, who should be allowed to make it, how its use and creation should be controlled, and whether it should exist at all—are questions that have perplexed the public, vexed politicians, and puzzled economic experts. Knowing how, when, and why paper money first became commonplace in America and the nature of the institutions propagating it, can help us better comprehend paper money’s role in society. Benjamin Franklin (1706-1790) dealt often with this topic and his writings can teach us much about it.

The War for Independence left the National Government deeply in debt. The spoils from winning that war also gave it an empire of land. So, post-1783, was the National Government solvent? Was its net asset position, land assets minus debt liabilities, positive or negative? Evidence is gathered to answer this question by constructing a yearly time series of its net asset position, including time series of the subcomponents of that position, from 1784 through 1802. The answer to this question may help explain the constraints that determined why the National Debt was funded in the particular way that it was. The results from the data series constructed indicate that the National Government was solvent, had more than enough land assets to cover its debt liabilities, in this period but only if it maintained the default on the Continental Dollar (its non-interest-bearing debt). To do this and not ruin its creditworthiness it had to distinguish, legally and in the marketplace, between its interest-bearing and its non-interest-bearing debt. It did this, in part, by only paying interest and no principal on its debts and by curtailing direct swaps of land for debt.

The monetary powers embedded in the U.S. Constitution were revolutionary and led to a watershed transformation in the nation’s monetary structure. They included determining what monies could be legal tender, who could emit fiat paper money, and who could incorporate banks. How the debate at the 1787 Constitutional Convention over these powers evolved and the path the founding fathers took that led to the specific powers adopted is presented and deconstructed. Why they took this path rather than replicate the colonial system and why they codified such powers into supreme law rather than leave them to legislative debate are addressed.

The purported failure of the classical quantity theory of money in the colonial economy is shown to be a failure of data and not a failure of theory. When new data on the quantity of specie in circulation is added to the current data on paper money and prices, and econometrically estimated in both short- and long-run monetary models, the long-debated anomaly regarding the performance of the classical quantity theory of money in the colonial economy disappears. How paper money was backed and could be exchanged for specie was important, but not in the way theorists assert.

The monetary powers embedded in the U.S. Constitution were revolutionary and led to a watershed transformation in the nation’s monetary structure. They included determining what monies could be legal tender, who could emit fiat paper money, and who could incorporate banks. How the debate at the 1787 Constitutional Convention over these powers evolved and the path the founding fathers took that led to the specific powers adopted is presented and deconstructed. Why they took this path rather than replicate the colonial system and why they codified such powers into supreme law rather than leave them to legislative debate are addressed.

For the six major British North American colonies, five of whom independently issued their own fiat paper money, exchange rates between these colonies are constructed and combined with price indices to test purchasing power parity between these colonies. Purchasing power parity is then tested between these same six locations after they became states united politically and monetarily under a common currency with no trade barriers established by the U.S. Constitution. Even when using short spans of data and low powered tests, purchasing power parity cannot be rejected in either period, and if anything, holds with more confidence prior to political and monetary unification.

The existence and extent of intra-family debt shifting via selling children into bondage among German immigrant families to North America is documented using quantitative ship manifest and servant auction data. This evidence is at odds with the standard description presented in the literature based on literary sources. Market competition created the opening and colonial welfare laws drove German immigrant parents into selling their children into bondage to finance their own (the parents’) migration, but only for children within a particular and narrow age range. German immigrant parents did not callously treat their children as investment goods.