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North Carolina’s colonial assembly emitted its own paper money and maintained some amount in public circulation during its entire history as a separate colony. No systematic or statistical analysis...

Ron Michener takes issue with my approach to and analysis of colonial Virginia's paper money. He objects to how I calculate the paper money's asset present value when the paper money is hypothesized to be zero-coupon and interest-bearing bonds. He questions my data on the amount of Virginia's paper money in circulation, and he objects to the econometric treatment I apply to my model of that money's performance. He, however, presents no alternative data constructions, or any alternative explanations for the patterns in the data, nor does he present any alternative hypotheses or do any hypothesis testing to account for the level and movement in the value of Virginia's paper money.

The quantity theory of money is applied to the paper money regimes of seven of the nine British North American colonies south of New England. Individual colonies, and regional groupings of contiguous colonies treated as one monetary unit, are tested. Little to no statistical relationship, and little to no magnitude of influence, between the quantities of paper money in circulation and prices are found. The quantity theory of money does not explain the value and performance of colonial paper monies well. This is a general and widespread result, and not a rare and isolated phenomenon.

Colonial Virginia's legislature introduced an inside paper money into its domestic economy that was, at that time, primarily a barter economy without any government or bank-issued inside paper monies in circulation. I decompose Virginia's paper money into its expected real-asset present value, risk discount and transaction premium. The value of Virginia's paper money was determined primarily by its real-asset present value. The transaction premium was small. Positive risk discounts occurred in years when monetary troubles were suspected, namely worries that the government would not redeem the paper money as promised. Counterfeiting, however, was not one of these worries. The legislature had the tools and used them effectively to mitigate the effects of counterfeiting on the value of its paper money. Colonial Virginia's paper money was not a fiat currency, but a barter asset, with just enough transaction premium to make it the preferred medium of exchange for local transactions. It functioned like a zero-coupon bond and traded below face value due to time-discounting, not depreciation.

In this article, the author reconstructs the data on Virginia's paper money regime using forensic accounting techniques. He corrects the existing data on the amounts authorized and outstanding, and reconstructs yearly data on previously unknown aspects of Virginia's paper money regime, including printings, net new emissions, redemptions and removals, denominational structures, expected redemption tax revenues, and specie accumulating in the treasury for paper money redemption. These new data form the foundation for narratives written on the social, economic, and political history of Virginia, as well as for testing models of colonial paper money performance.

The British North American colonies were the first western economies to rely on colony-specific legislature-issued paper money as a medium of exchange for domestic transactions. The creation of paper money regimes arose piecemeal among the colonies, making each story unique. Maryland’s story is the most complex among the colonies, since the emission of paper money resulted from an attempt to control and manipulate the tobacco market. The paper discusses how market forces, legal maneuverings, and the power of various constituencies combined to shape Maryland’s particular paper money system, assesses its successes and failures, and identifies the winners and losers among Maryland’s political classes as a result of this paper money experiment.

I decompose the market value of Colonial New Jersey's paper money into its component parts, namely its real-asset present value and transaction premium. Its market value was predominately determined by its real-asset present value. I also find a small transaction premium that is positively associated with the quantity of paper money in circulation and with the land-bank method of paper money injection. This paper money was not a fiat currency. It traded below face value due to time-discounting not depreciation.

I reconstitute the spending obligations and revenue sources of colonial New Jersey's provincial government for the years 1704 through 1775 from primary sources using forensic accounting techniques. I identify and analyze the methods for raising revenue to meet normal peacetime and emergency wartime expenses. I calculate the provincial tax burdens imposed on New Jersey's citizens. I identify how Britain interfered with New Jersey's fiscal structure. I estimate what the revenues and tax burdens would have been without this interference. New Jersey paid for war expenses by issuing bills of credit, spreading the tax burden of redeeming these bills into the future. New Jersey paid its yearly administrative costs with current property taxes and with current interest earnings from loaning paper money. In the absence of British interference and wars, New Jersey could have driven tax burdens to zero by using interest earnings to pay for all its provincial administrative costs.

Maryland's non-legal-tender paper money emissions between 1765 and 1775 are reconstructed to determine the quantities outstanding and their redemption dates, providing a substantial correction to the literature. Over 80 percent of this paper money's current market value was expected real asset present value and under 20 percent was liquidity premium. It was primarily a real barter asset and not a fiat currency. The liquidity premium was positively related to the amount of paper money per capita in circulation. This paper money traded below face value only due to time-discounting and not depreciation. Past scholars have simply confused time-discounting with depreciation.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Beginning in 1712, North Carolina’s assembly emitted its own paper money and maintained some amount of paper money in public circulation for the rest of the colonial period. Yet, data on colonial North Carolina’s paper money regime in the current literature are thin and often erroneous. We correct that here. We forensically reconstruct North Carolina’s paper money regime from original sources—providing yearly quantitative data on printings, net new emissions, redemptions and removals, and amounts remaining in public circulation. These new data provide the basis for future economic, political, and social histories of colonial North Carolina.

Beginning in 1712, North Carolina’s assembly emitted its own paper money and maintained some of its paper money in public circulation for the rest of the colonial period. This paper money has been reviled as an archetype of what was bad about the paper monies issued by American colonial legislatures. Yet little systematic analysis of North Carolina’s paper money has been undertaken. We correct that here. We reconstruct North Carolina’s paper money regime from original sources—providing yearly quantitative data on printings, net new emissions, redemptions and removals, amounts remaining in circulation, denominational structure, as well as the paper money’s current market value in pounds sterling. We identify different paper money regimes based on how the assembly structured and executed its paper money laws. We model and estimate how the market value of this money was determined. We compare the quantity theory of money with an asset-pricing model that treats the money as zero-coupon bonds to see which explains the observed market value of the paper money better. The asset-pricing model wins by a mile. Finally, we explore counterfactual redemption architectures to show how redemption affected monetary performance in periods of value collapse.

The British North American colonies were the first western economies to rely on legislature-issued paper monies as an important internal media of exchange. This system arose piecemeal. In the absence of banks and treasuries that exchanged paper monies at face value for specie monies on demand, colonial governments experimented with other ways to anchor their paper monies to real values in the economy. These mechanisms included tax-redemption, land-backed loans, sinking funds, interest-bearing notes, and legal tender laws. I assess and explain the structure and performance of these mechanisms. This was monetary experimentation on a grand scale.

I decompose Virginia’s paper money into expected real-asset present value, risk discount, and transaction premium or “moneyness” value. The value of Virginia’s paper money was determined primarily by its real-asset present value. The transaction premium was small. Positive risk discounts occurred in years when treasurer malfeasance was suspected. Virginia’s paper money was not a fiat currency, but a barter asset, with just enough “moneyness” value to make it the preferred medium of exchange for local transactions. Compared with alternative models, my decomposition model of inside monies is superior conceptually and statistically for explaining the performance of American colonial paper monies.

The U.S. Congress issued paper money called Continental Dollars to finance the American Revolution. The story of the Continental Dollar is familiar to all -- a lot were issued and hyper-inflation ensued. However, the details of this story are less well known. Scholars even disagree over how much was issued -- disagree by over 50 percent. Meaningful monetary analysis of the Continental Dollar cannot proceed given this confusion in the data. Evidence is gathered here to reconcile past estimates and establish the exact amount and time path of Continental Dollars emitted thereby overcoming the entropy that has crept into the historical record.(This abstract was borrowed from another version of this item.)

The War for Independence (1775-1783) left the federal government deeply in debt. The spoils from winning that war also gave it an empire of land. So, post-1783 was the federal government solvent, or at what point did it become solvent? Did winning the war, in effect, pay for the war? While these questions have not been addressed before, knowing the answer is important for understanding why a particular method was chosen for funding the national debt, how the new Constitution adopted by Congress in 1789 affected public finance, and how this new untried government - that was deeply in debt and had been in default on this debt for half a decade after independence - could garner an excellent credit rating by the early 1790s. Evidence is gathered on the government's liabilities and assets to estimate its net worth and so answer these questions.(This abstract was borrowed from another version of this item.)

I use denominational structure (the spacing and size of monetary units) to explain how the Continental Congress attempted to manage a successful common currency when sub-national political entities were allowed to have separate currencies and run independent monetary policies. Congress created a common currency that was too large to use in ordinary transactions. Congress hoped this currency would be held for post-war redemption and would not circulate as money during the war. As such, it would not contribute to wartime inflation. By contrast, individual state currencies were emitted in small enough denominations to function as the domestic medium of exchange.

The spending obligations and revenue sources of colonial New Jersey's provincial government for the years 1704 through 1775 are reconstituted using forensic accounting techniques from primary sources. Such has not been done previously for any British North American colony. These data are used to assess colonial New Jersey's provincial fiscal structure. The methods for raising revenue to meet normal peacetime and emergency wartime expenses are identified and analyzed. The provincial tax burdens imposed on New Jersey's subjects are calculated. How the British interfered with New Jersey's provincial fiscal structure is identified. What revenues and tax burdens would have been without this interference are estimated.

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

Controlling for SAT scores, college major, gender, and state of residence, university students were more likely to have joined a fraternity or sorority if they had come from in state and had higher verbal SAT scores, but lower math SAT scores, the opposite of what simple uncontrolled averages indicate. Controlling for the same variables, fraternity and sorority members suffered from 1 to 10 percent lower cumulative GPAs than non-Greek students. This negative effect was most pronounced for small fraternities and weakest for sororities.

Data from ship manifests and servant auctions can clarify the extent to which German immigrant families in early America resorted to intra-family debt shifting by selling their children into bondage. This evidence is at odds with the standard descriptions presented in literary sources, which exaggerate and stigmatize the practice. Market competition provided German immigrant parents with a financial opportunity that colonial welfare law constrained them to take. This debt shifting, however, affected only children within a particular, and narrow, age range, and German immigrant parents were not callously treating their children as salable assets by taking advantage of it.

The monetary powers embedded in the US 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 led the founding fathers to the specific powers adopted is presented and deconstructed. Why they took this path rather than replicate the successful colonial system and why they codified such powers into supreme law rather than leaving them to legislative debate and enactment are addressed.

Econ Journal Watch contacted me for the first time about this exchange just one month before this appears. I had about two weeks to write this reply such that it would appear along with the Michener and Wright comment published here, rather than in the subsequent issue. Because I believe for readers’ sake that authors should reply and should follow hard on the heels of their attackers, I have had to work in sudden haste. I apologize in advance for the reply’s rough and unpolished hue.

MICHENER AND WRIGHT (2006C) REPEAT THEIR AD HOMINEM attack on me—repeat in that they offer little that is new or original. They simply rearrange and re-cloth their prior material and present it again.1 Much of their rearrangement consists of rhetorical games—clever attempts to mislead the reader without being de jure dishonest. As in my past replies (Grubb 2005, 2006a), I will present new research—crafted here to reveal Michener and Wright’s attacks yet again for what they really are.

Farley W. Grubb (2003) provides an explanation of the rhetoric and behavior of the Founding Fathers regarding the monetary clauses put in the U.S. Constitution, which is consistent with the quantitative evidence on price indices, exchange rates, and the incidence of currencies used in market transactions both before and after the 1787 Constitutional Convention. Ronald W. Michener and Robert E. Wright (2005) (henceforth MW) challenge this explanation. They assert that the burden of proof in this debate should fall on revisionists, among whom they rank Grubb (2003). Grubb (2003), however, is well within the mainstream of scholarly historiography from Charles A. Beard (1913) to Robert A. McGuire (2003), which treats the Founding Fathers as classand self-interested rational maximizers rather than altruistic heroes. Indeed, I will show that MW's position is outside the scholarly mainstream, lacks adequate proof, and yields inconsistent, dubious, and unpalatable results. MW, in their capital objection, assert that the quantitative evidence used by Grubb (2003) reflects unit-of-account rather than medium-ofexchange money and so cannot support the monetary interpretation given to it by Grubb (2003). MW, however, offer no objective criteria for determining when a record reflects unitof-account versus medium-of-exchange money. By contrast, Grubb (2004a, 2005) presents objective and conservative criteria for such determination. Colonists converted values into unitof-account money when summing across numerous barter goods and currency transactions involving different monies. Thus merchant account books, bank records, government accounts, and statements about economy-wide aggregates cannot be safely used to trace the medium of exchange in use because they may just reflect unit-of-account money. Unregulated one-off transactions between strangers, however, which often explicitly record different monies within the same transaction, are more likely to reflect the actual medium of exchange in use. Grubb (2003, 2004a, 2005) uses only this latter evidence to infer shifts in the medium of exchange. MW do not mention this point, but readers need only consult Grubb (2004a, 2005) on this issue.

Market transaction data are used to estimate the quantity of specie in circulation. This estimate is used to provide the first comprehensive measure of a colony's money supply and, along with data on population and prices, to retest the quantity theory of money and measure output growth using the equation of exchange. Output growth is found to depend on periodization and the extent that rising commercialization increased the velocity of circulation. Specie was becoming relatively less scarce as the Revolution approached, and movements in specie and paper currency both offset and reinforced each other depending on the period of analysis. ( JEL N11, N21, E42, E51)

The desirability of politically creating currency unions among otherwise sovereign states is an ongoing debate. A key backdrop in this debate is the supposed empirical success of the U.S. dollar currency union. The fact that otherwise sovereign states within the United States are not constitutionally allowed to issue their own currency, thus creating a single currency for the whole United States—the U.S. dollar— is the archetype that underlies many policy choices and recommendations, such as the creation of the European currency union and the condemnation of the separate currencies issued by individual states within Argentina during their recent crisis. The benefits of the U.S. currency union and, by analogy, the benefits of other politically manufactured currency unions are assumed to be obvious, namely a reduction in monetary instability and exchange rate transaction costs within the union thereby stimulating long-run economic growth. These alleged benefits for the United States, however, are not derived from market evidence, but from simple theoretical assertions and from a literature that takes as fact the rhetoric of the winning side at the U.S. Constitutional Convention. Independent of theory and rhetoric, little is known about how and why the U.S. currency union was created, or about whether it improved macro performance. These deficiencies are addressed here. Prices indices, exchange rates, and market-generated transaction data from 1748 through 1811 are used to determine when the market moved from state currencies to the U.S. dollar and to assess the nonwartime performance of prices, exchange rates, and purchasing power parity before versus after this transition. This evidence suggests that the U.S. currency union had more to do with usurpation of state sovereignty by rent-seeking bankers than with solutions to monetary instability and transactions costs.

Maryland's non-legal-tender paper money emissions between 1765 and 1775 are reconstructed to determine the quantities outstanding and their redemption dates, providing a substantial correction to the literature. Over 80 percent of this paper money's current market value was expected real asset present value and under 20 percent was liquidity premium. It was primarily a real barter asset and not a fiat currency. The liquidity premium was positively related to the amount of paper money per capita in circulation. This paper money traded below face value only due to time-discounting and not depreciation. Past scholars have simply confused time-discounting with depreciation.

In this article, Maryland's non-legal-tender paper money emissions between 1765 and 1775 are reconstructed to determine quantities outstanding and redemption dates, providing a substantial correction to the literature. Over 80 per cent of this paper money's current market value was expected real asset present value and under 20 per cent was liquidity premium. It was primarily a real barter asset and not a fiat currency. The liquidity premium was positively related to the amount of paper money per capita in circulation. This paper money traded below face value due to time-discounting, rather than depreciation. Past scholars have simply confused depreciation with time-discounting.

The market value of colonial New Jersey's paper money is decomposed into its real asset present value and its liquidity premium. Its real asset present value accounted for over 80 percent, whereas its value as money per se accounted for under 20, percent of its market value. Colonial paper money was not a fiat currency. Its liquidity premium was driven by the quantity of paper money in circulation and the method of injection. The quantity theory of money performs poorly when using prices and exchange rates, but performs well when using real asset present values, to measure paper money's expected value.

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.

Approximately 50,000 British convicts were sentenced to servitude and forcibly transported to America between 1718 and 1775.1 This transatlantic market for British convict labor was a vast experiment in privatizing posttrial criminal justice. By the early eighteenth century, removal of criminals from society was seen as a more effective deterrent to recidivism than physical chastisement. Removal of noncapital offenders through mass hangings or employment as chain gangs in England was considered too barbaric and too politically risky. Removal through imprisonment was too expensive given the absence of penitentiaries designed for long-term incarceration. Thus, banishment overseas became the preferred policy.2 Convict transportees were given one of only three possible sentences, namely, 7 years, 14 years, or a lifetime of banishment (74, 24, and 2 percent, respectively), which in turn became the length of their servant contracts in America.3 To minimize the cost of overseas disposal, the British government channelled convicts through the existing transatlantic market for voluntary servant labor.4 The government fixed the length of all convict labor contracts prior to embarkation, and then turned the convicts over to the private shipping market. Thereafter, government penal policy exerted little direct influence. The transportation and disposal of convict labor was handled by the private sector for profit. Shippers auctioned convicts upon arrival in America to the private employers who bid the highest, with the monies received going to defray the shippers' transportation expenses. The trade was competitive. Numerous shippers from many British ports transported convicts and auctioned them in populated American markets, such as Annapolis and Baltimore. Convicts also competed directly with voluntary indentured servants for cargo space on ships leaving Britain.5 In addition, upon landing in America, convict labor competed with European immigrant servant and African * Department of Economics, University of Delaware, Newark, DE 19716 (e-mail: grubbf@be.udel.edu). Brian Golden, Anne Pfaelzer de Ortiz, and Jianmin Zhang provided research assistance, and Anne Pfaelzer de Ortiz provided editorial assistance. Preliminary versions were presented at the University of Delaware; Harvard University; University Lumiere-Lyon 2, France; University Pompeu Fabra, Spain; the University of Virginia; and the Economic History Society Meeting, Bristol, U.K. The author thanks the participants of these seminars and Pieter Emmer, Claudia Goldin, Leslie Goldstein, Bernard Harris, Saul Hoffman, Kyle Kauffmann, John Murray, Ralph Shlomowitz, and Richard Steckel for helpful comments. 1 They represented roughly a quarter of all British arrivals and half of all English arrivals in this period. The 1717 Transportation Act was passed in response to the crime wave accompanying the end of Queen Anne's War. See A. Roger Ekirch (1987 p. 27); Peter W. Coldham (1992a pp. 1, 6); Aaron S. Fogelman (1998 pp. 55, 71). 2 In the absence of penitentiaries designed for long-term incarceration, ciiminals were punished by physical chastisement, e.g., whipping, branding in the hand, or hanging. This menu of punishment left little middle ground for adjusting punishment to fit variation in the severity of a given crime. Forced servitude overseas provided that middle ground. For those convicted of noncapital crimes, e.g., larceny, mitigating circumstances could lead to a whipping or branding in the hand, whereas those considered to deserve less mercy or to be a continuing menace to society were sentenced to 7 or 14 years of servitude overseas. For those convicted of capital crimes, e.g., horse or sheep stealing, grand larceny, murder, etc., mitigating circumstances could lead to sentences of 7 years, 14 years, or a lifetime of servitude overseas, whereas those considered to deserve no mercy or to be a continuing menace to society were hanged. See Baltimore; J. M. Beattie (1986). 3 See Table 1; Baltimore; Grubb (2000b). The punishment for returning to Britain before the completion of one's sentence was hanging. 4 In 1697 the British Admiralty demanded eight pounds a head to transport convicts to America. By contrast, the private sector ended up transporting the majority of the convicts for no subsidy whatsoever, and the highest subsidy the Crown ever paid a shipper to transport convicts was five pounds per head. See Abbot E. Smith (1947 pp. 105, 11316); Frederick H. Schmidt (1976 pp. 35-38, 89); Ekirch (1987 pp. 70-74); Grubb (2000b). 5 Many shippers carried both convict and voluntary indentured servants on the same voyage. See Annapolis; Baltimore; Cheston-Galloway Papers; Grubb (2000b).

Forensic accounting is used to reconstruct the data on emissions, redemptions, and bills outstanding for colonial New Jersey paper money. These components are further separated into the amounts initially legislated, and the amounts actually executed. These data are substantial improvements over what currently exists in the literature. They also provide a more complete and nuanced accounting of colonial New Jersey’s paper money regime than what has been done previously for any British North American colony. Enough detail of the forensic accounting exercise is given for scholars to reproduce the data series from the original sources.

Convicts account for at least one-quarter of British migration to mid-eighteenth-century America. Their transportation to and disposal in America was essentially an experiment in privatizing post-trial criminal justice. A model of this trade is developed that yields testable implications regarding the relative distributional moments of convict auction prices, the size of shipper profits, and how convicts were selected for transportation.

Statutory laws in colonial America required that servants be given a particular set of goods upon contract completion. These laws were innovative and unprecedented. Their purpose has been interpreted as an effort to discourage servants from premature departure and to prevent ex-servants from taxing poor relief funds. These interpretations are shown to be inadequate, and an alternative explanation based on incomplete-contract theory is presented. Testable implications are developed regarding differences in end-of-contract payments by contract length, by the presence of money wages, and among indentured, convict, and apprentice contracts. The results support the incomplete-contract explanation.

R ecently in this journal, Komlos estimated the height of English and Irish indentured servants and transported convicts born between 1710 and 1760 using evidence taken from advertisements for runaway servants placed in North American newspapers.2 He found 'that the nutritional status of Englishmen began to decline with the birth cohorts of the 1730s. . . . According to the regression estimates, the decline [in height] between the 1720s and the 1740s was between 0.5 and 0.6 inches.'3 He pointed out that this 'was synchronous with the acceleration in the English population expansion in the 1730s'.4 He concluded, 'even if we acknowledge these limitations of the evidence, it appears that the height of the lower segments of the English population was probably beginning to decline prior to the beginning of the industrial revolution, and contemporaneously with the acceleration in population growth. In other words, population growth had started once again to press on available food supplies.'5 Komlos's claim is important because it provides a pre-nineteenthcentury example in which anthropometric measures diverge from conventional economic measures of the standard of living, indicating a deterioration in well-being during the first half of the eighteenth century when

Why are some forms of bound labour more coercive than others? Specifically, why was European indentured servitude in America more coercive than craft apprenticeship or life-cycle servitude-in-husbandry, despite the close similarity and derivative nature of these institutions? Concepts recently advanced in labour economics offer some preliminary answers to these questions. This investigation is exploratory in nature and focuses on three types of voluntary long-term labour contracts. However, the arguments and conclusions presented here may have wider applications and be useful for future research on other forms of bound labour which involve consent and contract.