Anne Mayhew writes in response to Mary Schweitzer,
"(1) Your suggestion that Pennsylvania took the landbank route to issuing
paper currency in part because "Pennsylvania policymakers were very
familiar with the experiences of New England with regard to fiat moneys
issued in wartime" bothers me. I am no expert in this area but my
understanding (based on such work as that of E. James Ferguson, "Currency
Finance: An Interpretation of Colonia Monetary Practices," William and
Mary Quarterly, X: 153-180) was that bills of credit issued in New
England often depreciated against hard money or bills of exchange
but that inflation (in any modern sense) was by no means a universal
problem.
I do not quarrel with Mary's description of the Pennsylvania policy as
successful but suggest that New England's system may have worked better
than she suggests."
I'm not sure how the recent dispute over the efficacy of bank credit has got
us to the long-standing debate over colonial currency practices, but I am
moved
to offer, for what it's worth, an observation on this latter point:
Judging from the exchange rate data reported by Roger Weiss, "The Issue of
Paper Money in the American Colonies, 1720-1774," JEH (Dec, 1970, Table 2,
p.
778) and by John Mccusker, Money and Exchange in Europe and America,
1600-1775,
inflation "in any modern sense" was seldom a problem anywhere, though it
could
reach annual rates of 11% or12% in Mass. and RI during the Seven Years War
and
apparently in South Carolina in the 1720s--rates that would command the
attention even of jaded 20th-century eyes. Nevertheless, there does seem
to
have been a regional difference in experience: over the half-century from
1720, Rhode Island currency depreciated against Sterling at an average
annual
rate of about 5% or 6%, about the same rate of depreciation achieved by
Mass.
currency over the 30 years from 1720. But Pennsylvania and New York
currencies
managed almost no such depreciation whatever over that period. For a
fascinating, and I find persuasive, analysis of these differences, I
recommend
Ronald Michener, "Fixed Exchange Rates and the Quantity Theory in Colonial
America," in the Carnegie-Rochester Conference Series on Public Policy, ed.
by
Karl Brunner and Allan Meltzer, vol. 27 (1987), 233-308. As Michener (and
Mayhew, too) points out, Smith had something useful to say on this matter
as
well.
Glenn Hueckel
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