NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Two Theories of Money Reconciled: The Colonial Puzzle Revisited with New Evidence

Farley Grubb

NBER Working Paper No. 11784
Issued in November 2005
NBER Program(s):DAE

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.

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Document Object Identifier (DOI): 10.3386/w11784

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