NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Backing, the Quantity Theory, and the Transition to the U.S. Dollar, 1723-1850

Peter L. Rousseau

NBER Working Paper No. 12835
Issued in January 2007
NBER Program(s):Development of the American Economy, Monetary Economics

Among the thirteen original colonies, Pennsylvania was most successful at issuing paper money with only minimal effects on prices -- so much so that the colony's experience is sometimes seen as violating the classical quantity theory of money. Quantity theorists usually attribute this apparent anomaly to mismeasurement of the money stock. In contrast, I use data on money, prices, and real activity in Pennsylvania from 1723 to 1774 and for the United States as a whole from 1790 to 1850 (when the money stock is better measured) to show that the long-run behavior of money and prices is well explained by the quantity theory in both periods, despite the differences in institutional arrangements, once growth in monetized transactions is taken into account.

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Document Object Identifier (DOI): 10.3386/w12835

Published: Peter L. Rousseau, 2007. "Backing, the Quantity Theory, and the Transition to the US Dollar, 1723–1850," American Economic Review, American Economic Association, vol. 97(2), pages 266-270, May. citation courtesy of

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