The Colonial Currency, Prices, and Exchange Rates


That the exchanges will be lowered, and the price of
Bullion raised, by an issue of . . . paper [currency] to
excess, is not only established as a principle by the most
eminent authorities upon commerce and finance; but its
practical truth has been illustrated by the history of
almost every state in modern times which has used a paper
currency; and in all those countries, this principle has
finally been resorted to by their statesman, as the best
criterion to judge by, whether such currency was or was not

"The Bullion Report," 18105 

The experience of past times, both of war and peace, leads
us to suppose, that the exchange between Great Britain and
foreign countries is not likely to remain for any long
period unfavorable to Great Britain. That the quantity of
circulating paper must be limited, in order to the due
maintenance of its value, is a principle on which it is of
especial consequence to insist. . . . 

It . . . appears, that "the coming and going of gold" does
not . . . "depend wholly on the balance of trade." It
depends on the quantity of circulating medium issued; or it
depends, as I will allow, on the balance of trade, if that
balance is admitted to depend on the quantity of
circulating medium issued. 

To limit the total amount of paper issued, and to resort
for this purpose, whenever the temptation to borrow is
strong, to some effectual principle of restriction; in no
case, however, materially to diminish the sum in
circulation, but to let it vibrate only within certain
limits; to afford a slow and cautious extension of it, as
the general trade of the kingdom enlarges itself; . . .
this seems to be the true policy . . 

Henry Thornton, 18016 

The utility of the quantity theory of money in explaining
the behavior of colonial prices and exchange rates has
lately been called in question. Joseph Albert Ernst
acknowledges that the quantity theory provides a sufficient
explanation in the case of runaway inflation, but he denies
that it provides an explanation in the case of general
price equilibrium. In such a case, he contends, the
explanation is to be found in the interplay of demand and
supply within the framework of the balance of payments.7 To
contend that this is so is to admit that gravity operates
when a man falls to his death over a precipice, but to deny
that it operates when a man falls from a curbstone and
breaks an arm. Ernst's explanation leaves in limbo much,
perhaps most, of colonial monetary history which fell
between the extremes of runaway inflation, of more moderate
price disturbances, and of general price equilibrium, if,
indeed, such a case can be isolated. 
Since a clear understanding of the nature of both the
circulating specie and the paper currency of the colonies
is necessary to achieve an understanding of the problems
involved in the determination of prices and exchange rates,
perhaps a few words concerning each may not be amiss. There
was no colonial coinage nor did the sterling coin of Great
Britain circulate in the colonies. Consequently, it was
necessary for the colonies to amass a supply of coin
through the medium of trade. 
The money metal of the eighteenth century was silver, not
gold. The chief coin of the colonies was the Spanish milled
dollar (piece of eight), worth 4s. 6d. sterling. There were
supplementary gold coins in circulation: the Johannes of
Portugal, which circulated after 1722 and was worth 36s.
sterling, and the Spanish Pistole, which was worth 12s.
2.8d. sterling, and had a substantial circulation in
Virginia prior to the French and Indian War. The silver was
chiefly derived from the West Indies trade. It was a saying
in New England in the early eighteenth century that the
"Fishery was then the NE Silver Mine."8 The gold came in as
a result of trade with the south of Europe. The colonies
retained the British monetary units: pounds, shillings,
pence (1 = 20s.; 1s. = 12d.). The foreign coins in
circulation in the colonies had values placed upon them by
the several colonial legislatures. They did not, however,
long circulate at their sterling values. Either to retain
their coin or to draw it from their neighbors, colonies
raised the value at which it circulated within their
boundaries. An upper limit to these values was set by the
Proclamation of Queen Anne of 1704, which placed a maximum
of six shillings on the Spanish milled dollar. Gold coins,
however, were not within the scope of the proclamation.
Throughout the colonial period, specie in the colonies
tended to be in short supply. 
Colonial paper currency, generally called bills of credit,
was issued on two bases: on the credit of the colony
supported by tax funds, and on loan. Massachusetts in 1690
was the first colony to issue bills on the credit of the
colony, and South Carolina in 1712, if the abortive attempt
by Barbados in 1706 be neglected, was the first colony to
put out bills on loan.9 As the first method evolved it
became customary to strike off the bills of credit, declare
them a legal tender in both public and private
transactions, and pay them out to the public creditors. At
the time of issue, provision was usually made for calling
in the bills. For example, a tax would be levied for the
five years next ensuing, from the proceeds of which
one-fifth of the bills were retired annually. The tax was
made payable in the bills; when the bills were paid into
the treasury, they were burned. By the second method, the
legislature established a "loan office" and struck off a
sum in bills, likewise making them a legal tender. It was
the duty of the commissioners of the loan office to place
the bills out on loan in limited sums on adequate security,
which was usually in the form of a mortgage on landed
property. It was customary to require the property to be of
double the value of the loan. Interest on the loan was
payable annually, and, beginning immediately or after a
period of years, the principal was repaid in equal annual
installments running over eight or ten years. When payments
on the principal were received, the bills were retired by
burning. Such issues served three purposes: (1) in an age
when private banks were unknown they supplied individuals
with the credit necessary for acquiring and improving land;
(2) interest payments contributed to the public revenue;
and (3) the bills, while outstanding, supplied a medium of
Perhaps it should be noted, for the matter is much
misunderstood, that the bills were not redeemable in
specie. When paid into the treasury in taxes or to the
commissioners of the loan office in payments on the
principal, at least at the end of the lending period, the
bills were destroyed. As long as the quantity of bills was
not excessive, they retained their value. It was only when
the original issue was excessive, or when repeated issues,
as in time of war, greatly increased the circulation that
the bills depreciated. 
We are interested in the effect of currency issues upon the
general price level. The changes in the price of individual
commodities in response to changes in supply and demand or
in the seasonal or cyclical movement of individual prices
are not our primary concern. The existing colonial price
indices based upon the prices of a few commodities bought
or sold in foreign commerce are in no way indicative of the
general price level.10 The colonial prices of such
commodities depend predominantly upon the conditions of
supply and demand in foreign markets and on the rate of
exchange. Only as monetary factors influence colonial
demand or the rate of exchange do they exert an influence
upon such prices. Evidence of the effect of currency
expansion upon the general price level must be sought
elsewhere than in the existing price indices. 
The colonists imported their manufactured goods from
Britain, payment for which had to be made in sterling
funds. The colonists gained control over sterling funds as
the result of their exports. In the Southern colonies trade
between the colonies and Great Britain was direct. A
Virginia planter might export his tobacco to Britain,
consigning it to a commission merchant who would sell it
and place the proceeds to the Virginia planters account.
The proceeds produced a fund of sterling money upon which
the Virginia planter might draw. Perhaps he accompanied the
shipment of his tobacco with an order for goods. His
correspondent in Britain would buy the goods and debit his
account for the cost. The goods would then be shipped to
the colony when the tobacco ships again returned to
Virginia. Here no more than a bookkeeping transaction was
necessary. If, however, the Virginia planter wished to
transfer some of his balance with his London correspondent
to Virginia for use in the colony, he might draw a bill of
exchange on his correspondent for, say, 100 sterling. The
bill was in the nature of an order to his correspondent to
pay 100 sterling. The planter then sold the bill at the
going rate of exchange to a fellow Virginian who had need
of sterling funds to pay an obligation in Britain. The
purchaser forwarded the bill to his creditor in Britain,
who presented it to the correspondent of the Virginia
planter for acceptance--for the custom was to draw bills of
exchange payable thirty days after sight. If the
correspondent accepted the bill, the creditor then held it
for thirty days, at the end of which time he presented it
for payment. The rate at which sterling bills were sold in
the colonies was determined at any one time by the
effective supply of, and demand for, sterling bills.11 The
basic question, however, concerning the effect of currency
issues upon exchange rates revolves around the effect of
such issues upon the demand for, or, to a lesser degree,
the supply of, bills of exchange. In the case of New
England and the Middle colonies, where direct trade between
the colonies and Britain was at a minimum, it was necessary
for the colonies to have recourse to a roundabout trade to
procure the necessary bills of exchange and specie to pay
their adverse balances with Britain. 

 Sustained Inflation: New England, 1702-1750
 The outbreak of Queen Anne's War (1702-1713) led to
ever-increasing issues of bills of credit drawn on the
credit of the colonies by Massachusetts and to the
introduction of bills of credit in Connecticut and New
Hampshire in 1709 and in Rhode Island in 1710 to help those
colonies to finance their exertions in the war. The nature
of trade in New England was such that the bills of one
colony were soon introduced into another and came to pass
current there. In this way, since the bills of one colony
enjoyed a "promiscuous circulation"12 in the other
colonies, they came to suffer a common depreciation. In
1709 the paper circulation of New England amounted to
69,364; when the war ended in 1713 it had grown to 219,448.
"It has been estimated that there were 200,000 of silver in
circulation in New England in 1700. By 1713 this sum had
been reduced to 130,000, and by 1718 according to some
statements, or by 1726 according to others, there was none
remaining."13 In 1700 silver passed current in New England
at 7s. the ounce. It continued at this figure until 1705
when the value of silver was raised to 8s. the ounce. This
increase was not the result of the emission of bills of
credit, but rather of the reduction of the silver content
of the Spanish milled dollar through the paring of the
coin, an action that proceeded from a resolution of the
merchants to receive silver at 8s. the ounce. At first the
bills of credit circulated at parity with silver and
manifested no tendency to depreciate. Later, however, it
was a different story. 

 As the issues of bills of credit put out to finance the
war increased from year to year, they created purchasing
power. This added purchasing power increased demand. Part,
at least, of the increased demand was for English goods.
When there was a sufficient amount of silver in the colony
to maintain a stable exchange rate, this increase in
purchasing power caused increased importations and larger
unfavorable balances of trade, which in turn increased the
demand for silver to meet these adverse balances. The price
of silver and exchange rose together; as exchange rose, the
price of English goods measured in colonial currency
likewise rose. The effect upon domestic prices of increases
in purchasing power arising from issues of bills of credit
was more direct. Here the increased purchasing power acted
upon the market directly as receivers of the bills entered
the market and bid up prices. It was otherwise in the case
of commodities produced largely for export, here a rise in
sterling exchange was soon translated into higher prices
for these commodities measured in colonial currency.14 The
effect of the later issues, however, upon the price of
silver differed from that of the earlier ones. Before 1710
the sum outstanding in bills of credit bore a small
proportion to the sum of silver in circulation. In 1710
there was perhaps as much silver in circulation as there
were bills. As long as this was true, silver sufficient to
make remittances to England came into the hands of
merchants in the ordinary course of trade. After 1710,
however, the situation altered. Bills were emitted in
larger quantities. Moreover, the outflow of silver
accelerated, for these were years in which the balance of
trade with England was extremely unfavorable. As the demand
for silver for making payments abroad grew and as the
supply of the metal within the colony dwindled and fewer
and fewer silver coins cam into the hands of the merchants
in the ordinary course of trade, the merchants began to bid
one against the other for it in order to make remittances
to England, and thus its price rose. The existence of a
stock of silver in a colony served to retard the rise in
the price of the metal even in the face of a substantial
increase in the sum outstanding in bills of credit. As
soon, however, as the stock became scarce, the rise became
more rapid. Then only the silver that was imported in the
course of trade with Southern Europe and the West Indies
became available for export.15 
Peace brought problems no less severe than had the war. The
occasion for issuing sizable sums in bills of credit ended
and whatever stimulus to business activity generated by the
constant emission of ever larger sums in bills disappeared.
Moreover, retirement of the bills of credit outstanding by
the annual tax levied for that purpose added to the
complexities facing the New Englanders. In these
factors--the end of wartime activity and expenditures, and
the prospect 

It is not remarkable, therefore, that during the next year
(1714) a cry of scarcity of money was heard. A cry in which
the commercial element in the province joined, for as
Cotton Mather, writing at the time, reported, the Gentlemen
of Business of the province considered the number and value
of the bills of credit remaining in circulation as no more
than a Spratt in a Whale Belly. The amount bore little
Proportion to the Business of the Country, and [the] People
[were] plunged into inexpressible Difficulties.16 

 The bills of credit in circulation in the several New
England colonies, 1703-1751, may be followed in Table I
and, for New England, graphically in Figure I. The effect
of these issues upon the price of silver may be followed in
Table II, which gives the annual price of silver at Boston,
and graphically in Figure I. The per capita figures of
imports from England point out the influence of the wartime
issues of credit upon trade with the mother country. During
the period, 1702-1706, the annual imports from England
averaged 0.71 sterling; in the period, 1707-1715, they
averaged 1.15 sterling; and in the period, 1716-1722, they
averaged 0.87 sterling.17 The per capita imports from
1707-1715 were greater than those of any similar period
throughout the colonial history of New England. During the
period, 1706-1715, the average annual rate of increase in
the price of silver was 1.70 per cent, while during the
subsequent period, 1715-1722, the average annual rate of
increase rose to 6.79 per cent. These figures of per capita
imports and of the average annual increase in the price of
silver clearly demonstrate the fact that during the period,
1706-1715, when silver was available for export to pay the
adverse balances occasioned by the increase in imports from
England, the effect upon the price of silver was but
moderate. During the period, 1715-1722, however, the demand
for silver continued strong and silver having grown quite
scarce, the merchants were forced to bid one against
another for it to meet their adverse balances, and the
price rose much more rapidly. 
With the bills of credit annually declining, the
Massachusetts gentlemen of business cast about to find ways
of replenishing the circulating medium. One group, taking
its cue from the proposal of Captain John Blackwell
circulated in the colony in 1688 and now reprinted,18
proposed that a group of individuals join together for the
purpose of issuing heir notes in an amount not to exceed
300,000, which they would covenant to receive in trade, and
which were to be lent out "upon good security," real or
personal.19 The five directors of the proposed bank were
all Boston merchants. The projectors sought the countenance
of the legislature, hoping to obtain an act of
incorporation, and to this end applied to the Assembly in
February 1714. The Assembly recognized the need for an
addition to the circulating medium but decided a public
rather than a private project was called for. Since no
action was taken at the February session the private
projectors continued to formulate their plans throughout
the spring and summer. On 20 August, however, in response
to a memorial from the Attorney General of the province,
the Council restrained the projectors from printing their
scheme, putting it on public record, or emitting any notes
or bills until they had laid their proposal before the
General Assembly. This they did at the October session but
the Assembly adhered to its earlier preference for a public
issue, and on 4 November authorized a public loan issue of
50,000; the following day it prohibited any company or
partnership from emitting bills of credit as a medium of
exchange or trade without the consent of the legislature.
The private projectors, unwilling to give up the struggle,
petitioned the King to incorporate them by charter. But
despite the support of the British merchants trading to New
England and of an initially favorable reception by the
Board of Trade, for reasons that do not appear, they
allowed their efforts to languish, and no action was taken
by the British authorities. 
The struggle between the supporters of a private bank and
of a public loan issue has sometimes been viewed as a
struggle between the trading interest, on the one hand, and
agrarian debtors who supported a public issue, on the
other. Both projects, however, appear to have belonged to
the trading part of the colony. "A Country-Man" wrote in
the Boston News-Letter in 1720, "that the General Assembly,
especially the Country part[,] had never thought of or
consented to it [the public loan], had it not been upon the
great Sollicitation & pressing Importunity of the Trading

The 50,000 issued in 1714 were lent out on landed security
to individuals for five years at an annual interest of five
per cent. During the period one-fifth of the principal was
to be repaid annually. The loan issue temporarily restored
the circulation and revived trade. Per capita imports,
which had stood at a high of 1.27 in 1711, had dropped to
1.00 in 1714. The next year, however, they rose again to
1.30. By 1716 the circulation had dwindled again and, since
the loan issue of 1714 had appeared so beneficial, a new
issue of 100,000 was thought desirable. The 100,000 in
bills of credit in 1716 were to be let out to borrowers at
five per cent annual interest for a period of ten years.
The interest was payable annually and the principal in a
lump sum at the end of the period. This time, however,
trade failed to respond to the replenished circulating
medium. Per capita imports had fallen in 1716 to 0.92 and
in 1717 they revived to only 0.96. Moreover, when the
increased imports of 1715 came to be paid for a year later,
the demand for returns caused the price of silver to rise
from 9 to 10s. the ounce. Henceforth, increasing the
circulation by putting out bills of credit on loan no
longer fostered restoration of trade but only caused the
price of silver to rise still further. 
Massachusetts neighbor Rhode Island was a small colony "of
not a much larger extent of territory than about thirty
miles square . . . of this, a great part is a barren soil,
not worth the expense of cultivation." 
The colony hath no staple commodity for exportation, and
does not raise provisions sufficient for its own
consumption; yet, the goodness of its harbors [of Newport
and Providence], and its convenient situation for trade,
agreeing with the spirit and industry of the people, hath
in some measure supplied the deficiency of its natural
produce, and provided the means of subsistance to its
By a roundabout trade carried on chiefly with the West
Indies, Rhode Island provided itself with the produce,
bills of exchange, and specie necessary to pay for its
imports from England. Few of these imports came from
England directly, rather they were imported through Boston,
New York, or Philadelphia. By trade with these several
colonies Rhode Island provided itself with the means of
paying for its imports through them. 
Rhode Island soon followed Massachusetts example in issuing
bills of credit on loan, putting out its first loan issue
in 1715. From that date until 1751 Rhode Island established
nine "land banks" (as her loan offices were called),
issuing in excess of 820,000 in bills of credit. Since, as
mentioned above, the bills of one New England colony
enjoyed a circulation in the other New England colonies,
Rhode Islands bills of credit soon flowed to Massachusetts
in the course of trade. In order to provide commodities for
her West Indian trade, Rhode Island bought up the produce
of Massachusetts, paying for it with Rhode Island bills of
credit. In this way Rhode Island, so to speak, levied
tribute upon Massachusetts, a fact that did not escape the
attention of the keener observers in the latter colony. In
fact, John B. MacInnes has written: "The key to
understanding Rhode Islands currency policy up to 1750, is
that it was in fact a parasitical device."22 
Unlike Massachusetts, Rhode Island because of her charter
was not subject to royal control through the
instrumentality of the royal instructions. As a result, she
was free to multiply her loan issues after Massachusetts
had been restrained. In 1720 Rhode Island, with an eighth
of the population of Massachusetts, circulated paper
amounting to one-fourth that of Massachusetts. By 1730, her
bills of credit equaled thirty-eight per cent of those
circulating in Massachusetts, although the relative
population of the two colonies had remained unchanged. By
1740, Rhode Islands circulation had grown to one hundred
thirteen per cent of that of Massachusetts, again the
relative populations remaining the same. The outpouring of
bills by Rhode Island greatly accelerated the depreciation
of the New England currency. 
The depreciating effect of the Rhode Island loan issues
upon Massachusetts bills of credit was such that, when in
1733 Rhode Island emitted 104,000 on loan, a group of
merchants in Boston, fearing that a large part of the issue
would gravitate to that city and depreciate the currency,
agreed not to receive the Rhode Island bills and, to meet
the need for a medium, issued their notes on a silver
basis. In all 110,000 were issued; "The Sum put to
Interest," it was said, was "very small . . . as the
Undertakers put the Notes away in common Payments, at 22s.
per Ounce."23 The notes were redeemable in silver at 19s.
the ounce (which was the price at which silver had passed
at the end of 1731), three-tenths at the end of three
years, three-tenths at the end of six years, and the
remaining four-
In 1733, the present value of the merchants notes,
calculated at 6% per annum compounded annually, was such
that an ounce of silver should have traded for 27s. 8d. of
the notes. Yet the merchants notes, because they initially
passed as a medium of exchange at par with province bills,
were put off at a higher value. Even when silver rose to
23s. the ounce at the end of 1733, their present value was
17% less than the value at which they circulated. The
merchants soon broke though their resolve not to receive
the Rhode Island bills and by the end of 1734 silver had
risen to 27s. at Boston. "As soon as silver rose to 27s.,"
Thomas Hutchinson has written, "the notes issued by the
merchants payable at 19s. were hoarded up and no longer
answered the purposes of money."25 By the end of 1734 the
value of the notes exceeded that of province bills by 3.5%;
whether this premium was sufficient to cause the notes to
be hoarded, as Hutchinson says, may be questioned. However,
when silver reached 27.5s. the ounce at the end of 1735,
the premium rose to 11.7%.26 This was doubtless sufficient
to cause at least a majority of the notes to be hoarded.
There are numerous references in the newspapers and
pamphlets of the time to the hoarding of the notes. It
appears, however, that not all the notes were hoarded, but
that some were left to circulate at a premium. The Land and
Silver Banks of 1740 need not engage our attention as they
soon were suppressed by act of Parliament and had little
economic effect. 
Prices. The price of silver, for which quotations exist,
serves not only as a measure of the rise in sterling
exchange rates, but also as a rather effective measure of
inflation in New England, as can be empirically
demonstrated. In 1707, the price of an ounce of silver at
Boston was 8s.; by 1747, it had risen to 56.8s. Using the
1707 price as the base, the index number of the price of
silver in 1747 is 710. In 1747 two Massachusetts ministers
provided comparisons of a market basket of prices: the
first of 1707, the second of 1717, comparing them with the
prices of the same articles in 1747. The market baskets in
each case consisted of the provisions necessary to supply
the table of a family for a week. The first basket included
a chicken, a goose, a turkey, butter, cheese, eggs, beef,
mutton, pork, veal, corn, rye, wheat, milk, and beer; in
addition one finds candles, a pair of mens shoes, and a
pair of women's shoes. If the cost of the goods in the
market basket in 1707 be taken as the base, the index
number of the 1747 prices stands at 741. The second basket
included milk, mutton, salt pork, beef, flour, eggs, beer,
corn, rye, turnips, peas and beans, sugar, butter, cheese,
candles, and wood. If in this case the cost of the articles
contained in the basket in 1717 be used as the base, the
index number of the 1747 prices stands at 515. The prices
of the several commodities in the baskets did not rise
uniformly. In the first basket the 1747 index number for
the price of eggs is 1800, while that of the price of beer,
is 450. In the second basket, the 1747 index number for the
price of cheese is 741, while that for both eggs and beer
is 300.27In the first basket the 1707 price of a bushel of
wheat is 5s., the 1747 price is 25s. If the 1707 price be
used as the base, the 1747 index number of the price of
wheat stands at 500. The 1747 index of the Boston price of
wheat similarly computed stands at 473.28 
Eleven commodities were common to both lists: butter,
cheese, candles, eggs, beef, mutton, pork, corn, rye, milk,
and, beer. Using 1707 prices as the base, the index number
of these eleven commodities was: 1707, 100; 1717, 245; and
1747, 881. It was said that the price of butter rose "the
most uniformly of all Provisions." Again using the 1707
price as the base, the index of the butter price was: 1707,
100; 1717, 167; 1733, 450; 1739, 500; and 1747, 1042.
Prices rose faster than wages. The laborers on the Boston
Townhouse in 1712 received 5s. a day. By 1739, wages had
risen to 12s. a day.29 Using 1712 as the ase, the 1739
index of wages is 240. The 1739 index of the price of
butter, however, was 500. 

 Perhaps the Massachusetts sterling wheat price ratio gives
the best indication of the rise of commodity prices during
this period. The Massachusetts sterling wheat price ratio
is calculated by dividing the price of a bushel of wheat
Old Tenor in Massachusetts by the Pennsylvania sterling
price. The effect of such calculation is to smooth out the
annual fluctuations in the price of wheat that derive from
the changes in the supply and demand for wheat during any
one year. Massachusetts was a wheat importing colony and
Pennsylvania was a wheat exporting colony. The calculation
can be made for the years, 1720-1749. The wheat price ratio
rose from 3.15 in 1720 to 16.53 in 1747, thus the latter
figure was 5.42 times the former. The rise in the ratio may
be followed in Figure I.30 

Sterling exchange rates. In discussing the behavior of
sterling exchange rates in New England during the period,
1703-1750, our inquiry will be centered on the relationship
between the ever-increasing paper circulation and the
sustained increase in the sterling exchange rate. The
balance of trade with England was always adverse.
Consequently, silver flowed from New England to the mother
country each year. In times of a stable currency, however,
the outflow to England was matched by the inflow from New
England's trade with the West Indies. With the increase of
purchasing power that resulted from the increase in the
annual issues of New England's bills of credit, imports
from England increased and the adverse balance increased.
As a result, more and more silver flowed each year to the
mother country. At first, when the increases of the bills
of credit were relatively moderate, and when the silver
supply remained sizable, the price of silver was not
affected, and the currency retained its value. When the
supply of silver became diminished, however, and not enough
silver coins came into the hands of the merchants in the
ordinary course of trade to supply them with the necessary
silver for redressing the adverse balance, they began to
bid one against another for it. Thus the price of silver
was bid up and the currency began to depreciate. As the
supply of silver in New England diminished still further,
the annual rise in the price of silver increased. By 1720,
or in any event by 1725 or 1726, when the stock became
exhausted, the rise in the silver price became more
precipitate. The rise may be followed in Table II, or
graphically in Figure I. By consulting Figure I, one will
see that the slope of the currency curve, between 1720 and
1740, is somewhat greater than the slope of the silver
price curve during the same period. In neither case,
however, is the curve smooth, although in each case the
general slope remains fairly constant. Without question the
chief cause of the rise in the silver price during this
period was the annual increase in the amount of paper
currency in circulation. Since, however, the two curves do
not correspond, either in their slopes or in their
fluctuations, other causal elements must be taken into

 The trend in the silver price line in Figure I represents
the effects of the increase in the circulating medium upon
the price of sterling exchange. The fluctuations around the
trend represent the effect of accidental changes in the
balance of payments from year to year. As William Douglass
In New England, as in all other trading Countries, from
some particular Accident and Circumstances, there happened
at Times, some small fluctuations in Exchange, without any
Regard to Emissions of Paper Money. At all Times, when
Returns in Ship Building, Whale Oil and Fins, Naval Stores
&c. turn out well at Home; Silver and Exchange here suffer
a small fall: at other Times when these prove bad Returns,
Silver and Exchange rise a small Matter; the most noted
Instance was in A. 1729, when the usual Returns to Great
Britain turned to bad Account; the Merchants from Home
directed their Factors here, to make Remittances in Silver
or Exchange only, and at any Rate . . . Silver rose very
considerably, but after a few Months fell again to the
former Price.31 
Such accidents account for the fluctuations around the
trend. The difference in slope between the currency curve
and the silver price curve must be accounted for otherwise.
To that we now turn attention. 

In the absence of the operation of other factors, one might
expect the slope of the silver price trend curve to be the
same as that of the currency trend curve. When they
diverge, however, one is forced to look for the cause.
Although the increase was not uniform, trade with England
(imports plus exports) tended to rise over the years. If
one calculates a two-year moving average, for trade with
England during the two years preceding the year in
question, one has a useful tool for determining the cause
of the difference in the slopes of the currency and silver
price curves. Some divergence is easily accounted for,
since some of the increase in currency was absorbed by the
growing volume of trade. To judge whether this explanation
alone is sufficient, hypothetical silver prices were
calculated taking both the growth in the money supply and
trade into account.32The calculated silver prices are
derived from the quantity theory, using growth in trade
with England as a proxy for growth in trade generally. When
the calculated silver prices have been ascertained, they
are then plotted on the silver curve in Figure I. It will
then be seen that the calculated prices fluctuate
irregularly about the actual prices. When the calculated
prices are compared with the contemporary evidence
respecting fluctuations in the balance of payments, one
will see that they correspond to a marked degree. In the
case of 1729, the year in which, as we have seen, the
ordinary returns to England turned to bad account, the
actual price of silver was 20.3s. the ounce, while the
calculated price was 17.87s. the ounce. 
The year 1734 provides another example. In that year the
act of Parliament that levied a duty of 6d. per gallon on
foreign molasses imported into the colonies first took
place. The act abridg'd the Trade of the Province in one of
its most considerable Branches for a short Time . . . there
happen'd also some Failure of its Cod and Whale Fishery,
both which occasion'd a great Deficiency in its Returns
that Year, and there was the usual Importation of English
Goods, and no Increase of the Silver and Gold generally
imported into the Province, and of the Bills of Exchange to
be purchas'd there, and about the same Time there happen'd
a large Increase of the Paper Currency by a new Emission of
Rhode-Island Bills . . . this Conjunction of Circumstances
caus'd Silver to rise from twenty Shillings to twenty seven
Shillings and six pence per Ounce, and consequently the
Bills of Credit to depreciate above one third Part of their
former Value.33 

 On this occasion both the increase in the currency
circulation and the deficiency in returns operated together
to raise the price of silver, both the calculated price and
the actual price. In 1733 the actual price of silver had
been 22s. the ounce, while the calculated price had been
23.50s.; in 1734, both prices had risen, the former to
25.70s., the latter to 24.90s.; by 1735, however, the
actual price had risen to 27.50s., while the calculated
price had risen to only 27s. 

 Inspection of the currency curve and the silver price
curve in Figure 1 will indicate that the disparity in the
slopes of the two curves increases in the years after 1740,
the slope of the currency curve becoming relatively
steeper. The formula no longer suffices to provide an
explanation. Consequently, the explanation must be found
elsewhere. The annual rate of increase in the currency
curve for the successive periods, 1720-1729, 1730-1739, and
1740-1749 will serve to emphasize this change in the
relationship of the slopes of the two curves. During
1720-1729, the average annual percentage increase in the
currency curve was 6.2%, that in the silver price curve,
4.8%; during 1730-1739, the figures are: 5.1% for the
currency curve, 3.8% for the silver price curve; during
1740-1749, the figures are, 16.4% for the currency curve,
7.3% for the silver price curve. The ratios of the currency
curve to the silver price curve in these successive periods
are: 1.29, 1.34, and 2.25. How is this increased divergence
of the two curves to be explained? 

 The decade of the 1740's found both England and her
colonies engaged in war, at first with Spain, later with
France. In 1739 the War of Jenkins Ear broke out--a war
that continued until 1742. It was fought in the Caribbean.
In 1740 a colonial expedition against Cartagena in Panama
was launched. It proved a costly failure. Then in 1744 war
broke out between Britain and France. Soon New England was
involved in a life and death struggle with the French in
Canada, a struggle not concluded until 1748. In the summer
of 1745 a New England expedition, aided by the British
fleet, captured the French stronghold of Louisbourg on Cape
Breton Island. The expedition was a major effort and from
the monetary point of view a costly one. The martial
activities during the war accounted for the great
outpouring of bills of credit of the 1740's and the
resulting rise in the price of silver and consequent
depreciation of the New England currency. During the
1740's, New England's imports from England rather
diminished than increased. The average imports for the five
years, 1735-1739, were 245,980; for 1740-1744, 195,007; and
for 1745-1749, 199,599. Nonetheless, the balance continued
adverse. New England, however, was much aided in meeting
her adverse balance by bills of exchange drawn by the
several colonial governors and by military officers in the
colony upon the British government. A partial list of these
aids, particulars of which are set forth in Table III,
amounts to 634,567 sterling. This sum is equal to 47.2% of
New England's unfavorable balance of trade with England for
the years, 1740-1749. These aids, which were ordinarily
drawn by bills of exchange sold to the colonists, provided
the funds for easing the strain on the adverse balance upon
New England and, consequently, the price of silver was not
bid up to the point that it otherwise would have been. In
this way the increasing disparity in the slopes of the New
England currency curve and the silver price curve is to be

Ordinarily when the balance is unfavorable and it is found
necessary to export specie, the price of exchange rises
above the equivalent in silver. In New England during the
period under discussion, however, the silver equivalent was
usually higher than the exchange rate. The exceptions to
this were the years, 1700-1710, at the beginning of the
period, and the three years, 1740-1742, towards the close
of the period. For the years, 1720-1729, the sterling
equivalent averaged 8.9% higher than the exchange rate; for
the years 1730-1739, 13.6% higher; and for the years,
1740-1749, 5.5% higher. Perhaps an explanation of this
reversal in the relationship of the silver equivalent and
the exchange rate is to be found in the following statement
of J. Wright: 

The Trade of the Northern Colonies continuing for many
Years in a ad State, the Balance with Britain always
against them, occasioned the ready Money they had amongst
them to be picked up by the Merchants and Factors residing
in America, acting for their Corespondents or Employers in
Britain, and Cash or Bullion, being a certain Remittance
preferable to Bills of Exchange or Produce, which were very
precarious, the Bills being often sent back protested, and
the Goods coming to a bad Market; this made the Merchants
and Factors rival each other in purchasing Gold and Silver,
and from Time to Time, raised the Price; and in Proportion
as the nominal Value of the same advanced, the Price of
Bills, and the Rates of their Currencies, kept Pace with
it, and proportionally depreciated as the nominal Value of
the Specie advanced, compared with the Value of Money in

New York and Pennsylvania
Bills of credit before 1750. The currency history of New
York and Pennsylvania offers a sharp contrast to that of
New England. Although there was a mild depreciation in the
early years in both colonies as measured by the exchange
rate, by the early 1740's the currency of both colonies had
stabilized. The Spanish milled dollar had achieved a
customary value in trade of 8s. in New York and 7s. 6d. in
Pennsylvania. Its value was to remain unchanged throughout
the remainder of the colonial period. 

The reasons that called forth the first issues of bills of
credit in the two colonies differed. New York, situated on
the northern frontier, was more involved in the struggle
with the French in Canada than was Pennsylvania to the
southward. In 1709, New York, as a measure of war finance,
emitted her first bills of credit in the sum of 5,000, to
be called in by taxes levied for the purpose. Between 1709
and 1747, New York issued a total of 206,228 on tax funds.
In the year 1737, she also issued 40,000 on loan, making
the total issue through 1747 246,228. From 1702 to 1743 the
price of an ounce of silver had risen from 6s. 10 1/2d. to
9s. 2d. The par of exchange had risen from 125 to 177.77
and the average annual rate from 133.33 to 174.67. Both the
silver price and the exchange rate indicate a 33 1/3% rise
in prices. 

The occasion for Pennsylvania's recourse to bills of credit
was the depression that enveloped the colony in the early
1720's. The price of the colony's produce had fallen on the
international market and the resulting unfavorable balance
of trade with the mother country had swept off the silver
to England, leaving the colony bereft of a currency. Trade
bade fair to come to a stop. Debtors could not pay their
debts and what little business was left was carried on
chiefly by discount, which was essentially barter. The
legislature, after considering recourse to a commodity
currency, finally decided, rather reluctantly, to issue
15,000 in bills of credit on loan. The issue restored
economic activity in the colony but was deemed inadequate,
and the next year, 1724, an additional 30,000 was issued on
loan. The index of wheat prices (1720 = 100) had fallen to
88.6 in 1724, and during the same period, flour had fallen
from 100.0 to 95.0. Immediately following the issues of
1723 and 1724, both the price of wheat and of flour
revived, the index of wheat to 100.1 in 1724, 125.6 in
1725, and 124.0 in 1726; that of flour to 107.7 in 1724,
129.6 in 1725, and 110.6 in 1726. Although the improvement
in the price of wheat and of flour was widely attributed to
the issues of paper currency, it seems to have resulted
entirely from the improvement in the international market,
for the index of the sterling exchange rate (1720 100),
which had stood at 101.2 in 1723, in 1724 stood at 100.4.
Thus it appears, that no part of the colonial rise in price
could be attributed to an increase in the exchange rate.
Trade again subsided in 1729 and a further loan issue of
30,000 was emitted. An issue of 11,110 in 1739 to replace
the loan bills of previous issues that had been retired
rounds out Pennsylvania's loan issues. In 1746 she issued
5,000 on tax funds to finance her wartime activities. These
were the only Pennsylvania issues before the French and
Indian War. Pennsylvania's issues and the sums in bills of
credit outstanding in each year may be followed in Table IV
and graphically in Figure II. From 1723 to 1743 silver rose
from 7s. 5d. to 8s. 6d. the ounce. Exchange likewise rose
from 140.37 to 159.79. The rise in prices that may be
attributed to the paper currency is mild. Measured by the
rise in the silver price it was no more than 10.1%;
measured by the rise in exchange, it was 13.8%. 

 Bills of credit, 1750-1775. The determining event in the
currency history of New York and Pennsylvania in the period
after 1750 was the French and Indian War, 1755-1763. Both
colonies found it necessary to emit large sums in bills of
credit to finance their wartime activities. In New York the
bills of credit outstanding in November, 1754, amounted to
126,081; by November, 1759, the sum had increased to
489,355, an increase of 288%. In Pennsylvania the bills
outstanding in 1754 amounted to 81,500; by 1760, the sum
had increased to 446,158, an increase of 447%. The sum
outstanding annually in New York may be followed in Table V
and graphically in Figure III; those in circulation
annually in Pennsylvania (1750-1775) may likewise be
followed in Table VI and graphically in Figure IV. 

The foreign commerce of New Jersey was carried on through
the ports of its neighbors, New York and Pennsylvania. East
Jersey imported and exported through the port of New York
and West Jersey through the port of Philadelphia. The
demand for imported goods in New York or Pennsylvania was
the New York or Pennsylvania demand plus a portion of the
New Jersey demand. It thus may be that the combined paper
circulation of New York plus that of East Jersey and
Pennsylvania plus that of West Jersey may have had more to
do with prices and exchange rates than the circulation of
New York and Pennsylvania alone. The population of East
Jersey equaled 46% of the total population of the colony
and that of West Jersey, 54%. The paper circulation of New
Jersey was divided between New York and Pennsylvania in
these proportions. The combined circulation may be followed
in Table VI and graphically in Figure IV. 
In New York, the New York bills of credit in circulation
increased by 288% between 1754 and 1759 while the imports
increased by 403%. The combined paper circulation of New
York and New Jersey, however, increased by 310% between
1754 and 1759. This figure corresponds somewhat more
closely to the figure for the increase in imports. The
remainder of the increase in imports is perhaps to be
explained by the fact that the circulating specie of the
colony had, as a result of funds flowing in to finance the
war, increased during the same period, for as Benjamin
Franklin wrote in mid-1756, "New York is growing immensely
rich, by Money brought into it from all Quarters for the
Pay and Subsistence of the Troops."35 In Pennsylvania, the
Pennsylvania circulation increased by 447% between 1754 and
1760, while imports increased by 189%.36 The combined
circulation of Pennsylvania and New Jersey increased by
497%. The fact that the circulation, either joint or that
of Pennsylvania alone, rose by a greater percentage than
did imports from Great Britain suggests that specie also
played a role in stimulating imports. On March 8, 1763,
Benjamin Franklin wrote, "The Crown, I am Inform'd, has
paid 800,000 Sterling in this Province only, for
Provisions[,] Carriages, and other Necessaries in the
Prices. Despite the great increase in the paper circulation
in the two colonies, the rise in the indices of wholesale
prices was but modest. In New York the index (1765-1766 =
100) stood at 77.3 in 1754; by 1762 it had risen to 106.0,
a rise of 37%. In Pennsylvania the index (1741-1745 = 100)
stood at 95.0 in 1754; by 1762 it had risen to 140.1, a
rise of 47%. These modest rises in the wholesale price
indices are to be accounted for by the fact that the
commodities that entered into the computation of the
indices were commodities that were traded on the
international market, either being imported or exported.
Consequently, their prices were chiefly determined by the
conditions that prevailed on the international market;
given the international price, the colonial price was
determined by the exchange rates. 
In the foregoing account no mention has been made of the
effects, or supposed effects, of "bookkeeping barter" upon
prices and exchange rates. Much of the retail trade of the
colonies, particularly in the country and smaller towns,
was carried on by what William T. Baxter has called
"bookkeeping barter."38 Storekeepers prices their goods in
monetary terms, but their customers paid for them in
commodities, upon which prices were likewise placed. When
credit was expanding, the demand for the storekeepers'
goods was increased. This increased demand might be
expected to raise prices. The supply of English goods,
however, was almost perfectly elastic. Consequently, there
was little pressure on prices from the supply side. The net
effect, however, of this increased demand for English goods
was to increase the importation and, consequently, the
unfavorable balance of trade. The expansion of credit
doubtless increased the price of domestic commodities whose
supply was not perfectly elastic. 
Bills of exchange were always bought and sold for money.
The increase in imports that resulted from the expansion of
credit increased the demand for bills of exchange to meet
the increased adverse balance. 
Prices generally, however, responded much more to the
increase in the currency circulation. An insight into their
behavior is to be found in a letter written by Benjamin
Franklin after his return to Pennsylvania in November,
1762, after a six-year sojourn in England: 
The Expence of Living is greatly advanc'd in my Absence; it
is more than double in most Articles; and in some 'tis
treble. This is by some ascrib'd to the scarcity of
Labourers and thence the Dearness of Labour; but I think
the [Dearness] of Labour, as well as of other Things the
Labour of which was long since perform'd, or in which
Labour is not concern'd; such as Rent of old Houses, and
Value of Lands, which are trebled in the last Six Years, is
in great measure owing to the enormous Plenty of Money
among us . . . [There is now] such an over Proportion of
Money to the Demand for a Medium of Trade in these
Countries, that it seems from Plenty to have lost much of
its Value.. 39 
Prices rose similarly in New Jersey. In the spring of 1763
Governor William Franklin of New Jersey wrote the Board of
Trade: "All the Necessaries of Life in this Country are
encreas'd in Price near Three fold to what they were Seven
Years ago."40 Although direct evidence is lacking, it seems
altogether logical that the experience of New York was
similar to that of Pennsylvania and New Jersey. 
Sterling exchange rates. The bounds within which sterling
exchange rates fluctuated in New York and Pennsylvania were
determined by the fact that in each of the colonies paper
currency, in effect was tied to silver at a given rate. In
New York, as has been pointed out previously, the Spanish
milled dollar was rated by custom at 8s.; in Pennsylvania,
at 7s. 6d. In England the Spanish milled dollar was worth
4s. 6d. sterling. The ratio between the sterling valuation
and the colonial valuations established the par of exchange
in the colonies. In New York, the par was 177.78; in
Pennsylvania, 166.67. This was the colonial par, and was so
viewed in the colonies. In England, however, Spanish silver
was a commodity that was exchanged as other merchandise.
Consequently, the price of Spanish silver varied with the
demand and supply. When a colonial merchant exported
silver, he shipped it to a broker in London, who sold it
for the best price obtainable. Since this price varied, the
"London" or "effective par" as it may be called for want of
a better name, fluctuated. The par was calculated by
dividing the colonial value of an ounce of Spanish silver
by the sterling price of an ounce of silver on the London
market. For example, if, as in New York, the price of
silver was 110.625d. the ounce and the London price was
65d. sterling the London, or the effective par, equaled
170.19. If, however, the London price was 67d. the ounce,
the effective par was 165.11. Thus it was that, strictly
speaking, there was no fixed par of exchange for the
currency of New York and Pennsylvania. 
The upper limit of exchange was determined by the London
silver price and by the cost of shipping the silver from
the colonies to Britain, a cost that included freight,
insurance, and brokers commission, as well as certain small
costs of handling the silver in London. The lower limit to
which exchange might fall was determined by the London
silver price and by the cost of importing silver. The point
at which it became profitable to export silver, or to
import silver, was spoken of as the "specie point." At the
outbreak of the French and Indian War, one of the
representatives of the British army in America wrote
The Ballance of Trade being mostly against our Colonies in
favor of Britain, they are obliged to make a great part of
their Remittances in Money or Bills, and the Exchange or
price they give for these Bills, is a good deal Regulated
by the price of Silver in London of which they have Advice
by every Ship.41 And when Silver is so dear in London as to
bear the charge of Freight, Insurance, Commission, &c.,
Exchange falls in America or the Specie is remitted, but as
this is not allwise the Case, they generally chuse good
Bills & give the full Value for them rather than be at the
trouble of Remitting the Cash.42 
In New York, the cost of shipping specie ranged from 5.34%
in peace to 11.20% in war; in Pennsylvania, from 5.51% in
peace to 11.02% in war.43 The range of the percentage
differential between exchange and silver in New York and
Pennsylvania for the various periods may be followed in
Table VII. For the years, 1751-1775, the fluctuations in
the exchange rates of New York, Pennsylvania, and
Massachusetts, as well as in the market price of Spanish
silver in London as it relates to colonial exchange rates
may be followed in Figure V. 
The expanding paper circulation in both New York and
Pennsylvania created additional purchasing power, which in
turn stimulated imports from England as the demand for
imported goods increased. In the five years following 1755
imports from England increased markedly in both New York
and Pennsylvania. In New York, imports in 1755 stood at
151,071; in 1759, they had risen to 630,785, an increase of
318%. In Pennsylvania, imports in 1755 stood at 144,456; in
1760, they had risen to 707,998, an increase of 390%.44
Both increases roughly paralleled the increase in currency
during the same period. The unfavorable balance of payments
of the two colonies with England increased even more than
did imports, as exports to England decreased at the same
time that imports were increasing. As a result of the
colonies increased adverse balance with the mother country,
the demand for bills of exchange also increased. 
The rise in the demand for bills of exchange to pay for a
surplus of imports was more than offset, however, by the
increase in the supply that resulted from the transfer of
British funds to the colonies to aid in the prosecution of
the war against France. Despite the unfavorable balance of
trade, the balance of payments was in favor of the
colonies. The result was, that while imports from England
were increasing, the exchange rate was falling. In New
York, between December, 1757, and June, 1760, the exchange
rate fell from 176.55 to 166.32, a decrease of 9.3%. In
Pennsylvania, the exchange rate fell similarly from 173.33
in June, 1756, to 152.52, a decrease of 12.0%. 
By any reckoning the aid provided by British payments in
America was substantial in aiding the colonies to meet
their adverse balance of payments. From 1755 to 1760, the
unfavorable balance of New York and Pennsylvania, reckoned
at the current values of the commodities, was 3,412,380,45
while British payments amounted to 2,463,296. This latter
figure is arrived at by adding the payments of the New York
deputy for the money contractors in Britain, the New York
and Pennsylvania portion of the cost of victualing the
forces in America during the same years, and the
Parliamentary Reimbursements.46 The British payments
equaled 72.2% of the unfavorable balance of trade during
the period. 
With the fall of Canada that followed the capture of Quebec
on September 18, 1759, and of Montreal on September 8,
1760, the war on the continent came to an end. Thence
forward, British payments in America were drastically
curtailed, a fact that was reflected in the rise in
exchange rates in the latter half of 1760. In New York, the
exchange rate stood at 166.50 in May, 1760; by December, it
had risen to 172.00, and by July, 1761, it had reached
185.00. There was a similar rise in Pennsylvania. In June,
1760, exchange stood at 155.50; by December, it had risen
to 169.50, and by August, 1761, it reached 177.50. 
When during 1761 and 1762 the heavy imports of the
preceding years had to be paid for, exchange rose even
though the paper circulation of both New York and
Pennsylvania was declining. In New York, between June,
1760, and November, 1762, the paper currency outstanding
fell from 489,355 to 330,807, a fall of 32.4%; in
Pennsylvania, the paper circulation fell from 446,158 in
1760 to 320,676 in 1762, a fall of 28.1%. At the same time
exchange rose in New York from 166.32 to 191.67, a rise of
15.2%; in Pennsylvania the rise was from 154.46 to 176.07,
a rise of 8.5%. This rise in the exchange rate took place
despite the fact that New York and Pennsylvania received
continued aid in the form of British payments, although in
a smaller amount as compared with the unfavorable balance
(20.8% as opposed to 72.2% for the preceding period). This
fact bears eloquent testimony to the increased colonial
indebtedness resulting from the large imports of late
During these years the silver in both New York and
Pennsylvania began to be drained off to England to aid in
the payment of the unfavorable balance. During the period
of low exchange rates, silver remittances to Britain appear
to have ceased. The Beekman Mercantile Papers, which are
our principal source for New York, indicate that from 1756
until at least the latter part of 1761, James Beekman
shipped no silver to Britain, although both before and
after this period he made frequent shipments.48 In both
colonies the mercantile correspondence of the day
complained of the dearth of silver and of its flight to the
mother country. So severe had the drain become by the end
of 1763 that on 2 December John Watts, a New York Merchant,
wrote to a business associate: "Exchange on London [at]
[1]90 per Ct: the Trade has swept off all Gold & Silver for
remittances, & even given 2 per Ct: Advance, so that we
have nothing remaining but Paper Currancy."49 Thus when New
York and Pennsylvania (as well as the other colonies)
entered the period after 1764 with their currency
restricted by the provisions of the Currency Act of 1764,
they found themselves with their silver swept off and with
a diminishing paper currency. Moreover, the colonies found
their chief source of silver, trade with the West Indies,
curtailed by the new trade laws. 
Massachusetts, 1750-1775: A Colony on a Specie Standard
Under the leadership of Thomas Hutchinson, the able speaker
of the House of Representatives, Massachusetts took
advantage of the Parliamentary reimbursement of her
expenses in the Louisbourg expedition to retire her bills
of credit and return to a specie standard. By Act of
January 26, 1749, it was provided that the Parliamentary
money should be brought over to the colony in Spanish
silver coin, which, supplemented by tax funds, should be
used to retire the outstanding bills of credit.50 During
the year following March 31, 1750, the Provincial Treasurer
was authorized and directed to pay out the silver "at the
rate of one piece of eight for every 45s. in old tenor and
for every 11s. 3d. in new or middle tenor." To supplement
the parliamentary grant a tax of 75,000, new tenor, was
levied to bring in funds sufficient to retire all the
outstanding bills of credit. For the future, the colony was
to be on a silver basis. All debts due after March 31,
1750, were to be deemed "payable in coin'd silver only," at
rates for the various tenors in which the debts might be
discharged equivalent to those at which the bills of such
tenor might be exchanged for silver at the treasury. New
contracts entered into after March 31, 1750, were
understood "to be in silver, at six shillings and eight
pence per ounce" and all pieces of eight of full weight
were to be taken at 6s., which, it will be remembered, was
the value established by the Proclamation of Queen Anne.51
The act also provided for the exclusion from circulation in
Massachusetts of the bills of credit of the neighboring New
England colonies. 
Immediately after the passage of the act, it was
transmitted to the provincial agent, William Bollan, who
pressed for its immediate confirmation. This was secured on
28 June 1749. Two weeks earlier, on 16 June, the
Parliamentary grant had been paid over to Bollan and Sir
Peter Warren, who, after the acts passage, began to buy
silver on behalf of the province. From the Bank of England
and on the open market they purchased 650,000 ounces of
Spanish silver at a net cost of 173,129 sterling. They also
purchased nine tons of copper half-pence and two-farthing
pieces at a cost of 2,111 sterling. The remainder of the
Parliamentary grant of 183,649 was consumed by expenses.
The money was sacked and boxed and shipped to New England
on H.M.S. Mermaid, Captain Montague, arriving at Boston on
September 18, 1749.52 
The redemption of the bills was completed substantially by
12 June 1751. The stragglers, however, which were received
in taxes, were not completely drawn in until 1754. After 1
June of that year Massachusetts was on a specie standard
and "to receive or pay" any of the bills of credit was made
an offense subject to a penalty of 10.53 
Massachusetts return to silver and the restraints of the
Currency Act of 1751 forced the colony to rely on another
mode of financing her exertions in the French and Indian
War. As a result, the method employed was different from
that used in any other colony. The treasurer was authorized
to borrow the sums necessary, at first to finance the
ordinary expenses of government, later to finance the war
effort. People initially were reluctant to lend; but when
it was found that the colony redeemed its notes promptly
all reluctance vanished and, as Thomas Hutchinson stated,
"the publick security was preferred to private, and the
treasurers notes more sought for than those of any other
person whomsoever."54 
"Between 1750 and 1764 there were some fifty odd acts
authorizing the treasurer to issue his certificates. These
were issued either to those who would lend or to the public
creditors. They bore interest at six per cent, and no
certificate was issued for a sum less than six pounds."55
The sums issued in each year and the amount outstanding
annually may be followed in Table VIII and graphically in
Figure VI. Only a small portion of the notes were issued in
emergencies to the public creditors; the vast proportion
were issued to those who had lent specie to the government.
On 1 August 1764 Governor Francis Bernard wrote to the
Board of Trade: 
At present [the notes] are allmost wholly in large Sums &
kept up as Securities: and as they're more Valuable than
cash, & the rule is in issuing new Notes to prefer the
Creditors upon former Notes, Treasurers Notes are hard to
be got & are not at all circulated. So that the present
Currency is wholly Specie, & neither wants nor receives any
assistance from Treasurers Notes.56 
So good was the colony's credit that in 1765 it proved
possible to refinance at 5% interest its outstanding
indebtedness which carried 6% interest. Thence forward the
outstanding sum in Treasury Notes decreased from year to
year until 1774 it stood at 56,170. 
Prices. One is left in the dark concerning the effect on
the general price level of the Massachusetts method of
financing the French and Indian War. As to wholesale
prices, the only index available is composed of the prices
of only three commodities, molasses, rum, and fish. The
index (1765-1766 = 100) rose from 94 in April, 1755, to 155
in January, 1760, a rise of 64.9%. Between January, 1760,
and October, 1764, the index fell from 155 to 94, a fall of
39.4%. In the absence of direct evidence one can only
conjecture that the rise in the general price level was
much greater, as was also the postwar fall.57 
Sterling exchange rates. The sterling exchange rate in
Massachusetts fluctuated in harmony with the rates in New
York and Pennsylvania, although the fluctuations were
milder. From June, 1755, to June, 1759, exchange fell from
133.33 to 125.76, a fall of 5.7%. From June, 1759, to
December, 1762, exchange rose from 125.76 to 139.50, a rise
of 10.9%. The comparable movements in the New York exchange
rate were a fall of 9.3% and a rise of 15.2%; those in
Pennsylvania were a fall of 12.0% and a rise of 8.5%. The
sympathetic movement of the exchange rate in Massachusetts,
New York, and Pennsylvania maybe followed in Figure V.58 
In the absence of the increase in purchasing power
resulting from increased emissions of paper currency,
imports in New England did not rise as rapidly in New
England as in New York and Pennsylvania. In 1755 New
England's imports from England amounted, in official
values, to 341,796; by 1760 they had risen to 599,647, a
rise of 75.4%; by 1762, however, they had fallen to
247,385, a fall of 58.7%. The corresponding rises and falls
in New York and Pennsylvania are a rise of 317.5% in New
York, followed by a fall of 62.2%; in Pennsylvania, a rise
of 390.1%, followed by a fall of 70.9%.59 
From 1755 to 1760, New England's unfavorable balance with
England and Scotland amounted in current values to
8,566,128. It was offset by British payments in America
amounting to 1,024,547, payments that amounted to 12.0% of
the unfavorable balance. During 1761-1766, New England's
unfavorable balance amounted in current values to
1,016,537.60 It was in turn offset by British payments
amounting to 321,972, payments that amounted to 31.7% of
the unfavorable balance.61 
During both periods British payments aided New England
materially in meeting her unfavorable balance, and thus
exercised a moderating influence upon exchange rates. 
Virginia's Bills of Credit: An Example of Limited Inflation
Virginia was the last of the continental colonies to have
recourse to bills of credit, being forced thereto by the
demands of the French and Indian War. The war, which broke
out in territory claimed by Virginia in western
Pennsylvania, began disastrously for the colonists.
Beginning in the spring of 1755, Virginia emitted
successive issues of bills of credit that by 1757 had
amounted to 207,000. The bills of these issues were made
receivable in the treasury at 5% advance. Early in 1757,
however, the colony replaced the outstanding issues of the
preceding years with bills that were made receivable in the
treasury at their face value. The amount of the exchange
issue was 99,962. From 1757 to 1762 successive issues
totaling 233,000 were emitted, making the total exclusive
of the reissue of 1757, 440,000. Virginia's issues of bills
of credit and the amount of bills outstanding in each year
may be followed in Table IX; the amounts outstanding are
also presented graphically in Figure VII. 
The fact that the colony was drained of specie in 1755 was
impelling cause of the recourse to bills of credit. Since
there was no stock of circulating specie to be supplanted
by the accumulating bills, the potential for depreciation
was great.62 The par of exchange in Virginia was reckoned
in the colony at 125. This par seems to have derived from
the fact that the sterling silver crown (worth 5s.) was
rated at 6s. 3d. by the Virginia act of 1727.63 The actual
par, however, appears to have been somewhat higher. By the
foregoing act silver was rated at 4d. the pennyweight. The
Spanish milled dollar of 17 pennyweight was worth 5s. 6d.
This would indicate a par of 129.6. 
The effect of Virginia's issues of bills of credit upon her
imports from Great Britain is hard to estimate, for to a
great extent her imports depended upon the state of the
tobacco trade. The poor tobacco crops of 1755 and 1758
greatly reduced the tobacco exports during 1756 and 1759.
During the latter years, however, the increased price of
tobacco occasioned by the bad crop made some amends for the
crop failure. Despite the decreased exports of 1756 and
1759, the imports of these years did not suffer. In 1755,
the estimated official value of Virginia's imports was
269,742; by 1760, imports had risen to 542,467, an increase
of 101%. This was but a modest increase compared with those
of Pennsylvania and New York, where during the same period
imports of the former colony rose by 385% and those of the
latter by 223%.64 From this comparison we can perhaps
conclude that the role of bills of credit in Virginia in
stimulating increased imports was not as great as in
Pennsylvania and New York. 
Sterling exchange rates. While in New York exchange rates
fell by 9.3% between 1756 and 1760 and in Pennsylvania fell
by 12% between 1756 and 1759, in Virginia exchange rose
from an annual average of 130.42 in 1755 to an annual
average of 163.41 in 1764, a rise of 25.3%. As we have seen
the rise in exchange in New York and Pennsylvania came
after the secession of the war on the continent in 1760. In
New York between 1760 and 1764 exchange rose 15.3%, while
in Pennsylvania during the same period, it rose 8.5%.
Although exchange in Virginia suffered a sustained rise
between 1755 and 1764, the major rise came in the period
between 1759 and 1764, the rise during that period
amounting to 16%, as against a rise of only 8% between 1755
and 1760. 
The rise in the sterling exchange rate was accompanied by
an increase in the rate at which the Spanish milled dollar
circulated in the colony. The dollar was legally rated at
5s. 10d. and customarily passed in trade at this figure;
however, by 1764 the rate had increased to 6s. 8d., an
increase of 14.3%, over the legal price, a figure nearly as
great as the 16% rise in the exchange rate during the same
Virginia, like the other colonies, was aided in meeting her
adverse balance by the British payments in America. Between
1757 and 1762, these payments in Virginia amounted to
320,271 sterling. The adverse balance between 1755 and 1761
amounted to 110,647; thus the British payments amounted to
289.5% of the unfavorable balance.66 
The fact that the major rise in the Virginia exchange rate
occurred after the cessation of British aid payments
suggests that the aids played a material part in damping
the rise in the exchange rate between 1755 and 1760. 
Joseph Albert Ernst places great emphasis upon the ebb and
flow of British credit sales in the colonies to explain the
fluctuations in the exchange rate. British exports to
colonies were usually sold on a years credit, although
frequently it was two, or even three, years before they
were paid for. Obviously, until colonial importers paid for
their importations they little influenced the demand for
bills of exchange. In Virginia, particularly, some planters
habitually drew upon their London correspondent bills of
exchange in anticipation of future tobacco consignments.
Shipments frequently failed to materialize as expected and
thus the planter became in arrears to his British
correspondent and sometimes the arrears grew from year to
year. Thus during the period British credit financed
colonial importations. Ernst argues that in times of
financial crisis in Britain, such as those that developed
in 1763 and again in 1772, British merchants dunned their
American debtors in an effort to call in their outstanding
American credits. Assuming that they were successful in
collecting their outstanding debts, the result was that the
demand for bills of exchange was increased and the rate of
exchange bid up.67 
For many reasons, the validity of this explanation appears
doubtful. It was one thing to dun the Virginia planter, it
was quite another to collect what was due from him. The
planters assets were in land and slaves, and only when he
sold his tobacco crop did his assets become liquid. Thus he
could not raise money to pay his debts unless he sold his
tobacco and, more important, had tobacco to sell. Again,
even if the planter were in a position to pay his debts,
there was the matter of effecting the transfer of the money
to Britain. Bills of exchange were in limited supply,
particularly during the period of high exchange in the
early 1760's. As the Pennsylvania provincial secretary,
James Logan, once wrote to William Penn, when the
proprietor was pressing him o transmit the proprietary
revenues, "We cannot coin bills [of exchange]."68 
Even if the debtor was prepared to make a remittance, he
often faced difficulty in finding a good bill of exchange,
or, indeed, in finding any bill at all. This is illustrated
by the New York merchant John Watts who on 6 November 1764
wrote to General Moncton, "I did intend to send a Bill of
Exchange but we cannot draw & the Money Agents say they do
not."69 If the planter entered the market, he would, of
course, even when silver was unavailable, tend to bid up
the price of exchange. But there were limits to the rate of
exchange that he would pay for bills, thus his demand was
effectively limited. Moreover, Maryland's economic fortunes
ran with those of her neighbor, Virginia. Maryland also
produced tobacco and sold it in Britain. It seems
altogether likely that when Virginia experienced an
unseasonable year, Maryland's crop suffered as well. During
and after 1763 there was no disturbance of Maryland
exchange such as occurred in Virginia. Moreover, during the
financial crisis of 1772, which was even more severe than
that of 1763, although the Virginia exchange rate rose by a
modest amount, no immoderate rise occurred such as in the
early 1760's. Again, disturbances in the other colonies
exchange rates did not compare to Virginia. All of this
strongly supports the view that the Virginia issues of
bills of credit mainly caused the French and Indian War
rise of Virginia exchange rates. 
It has sometimes been urged that Virginia's accumulating
indebtedness to Britain, which by 1755 amounted to
1,356,123 sterling, supports this view. At first blush, the
indebtedness of Virginia looks formidable; however, when it
is reduced to a per capita basis using the white population
for the purpose, it appears less so. The per capita
indebtedness was 4.98 sterling. In Maryland, where the
white population was less than half that of Virginia, the
debt of 304,385 was less than a quarter that of Virginia;
the per capita indebtedness was 2.27. Virginia's per capita
indebtedness was below that of South Carolina, which
amounted to 5.64. The highest per capita indebtedness was
that of Georgia, which amounted to 6.83. Neither in
Maryland nor in South Carolina nor in Georgia were there
disturbances in the exchange rate following the financial
panic of 1763 that by any measure equaled those in
Virginia. Of course the accumulating indebtedness, as long
as it remained outstanding, took pressure from the exchange
market and effectively canceled out an equivalent in
imports. In the Middle and Northern colonies the per capita
indebtedness was small, ranging from .0042 in New Jersey to
.49 in New York. Here it could scarcely have had a
significant effect upon exchange rates. 
All things considered, Virginia's paper issues appear to
have played the dominant role in the determination of
exchange rates. Without the paper circulation exchange
would not have risen to the height that it did. Only when
the bills of credit slipped the tether that bound them to
the customary value of silver, was exchange free to rise to
the height that it did. 
In our survey we have seen that accumulating issues of
bills of credit created purchasing power. Where, as was the
case in the colonies, manufactured goods were imported from
England, part of this purchasing power was spent for
manufactured goods; this in turn increased imports and
accentuated the unfavorable balance of trade with England.
Part of the increased purchasing power was spent for
colonial products and tended to bid up their price
directly. When it came time to meet the increased adverse
balance with the mother country, silver began to be
exported to supplement the bills of exchange that were
available. As long as sufficient silver came into the hands
of the merchants in the ordinary course of trade to enable
them to meet their needs for silver to make remittances,
the price of silver and the price of exchange did not rise.
As soon, however, as the accumulated stock of silver was
reduced to the point that merchants who needed silver to
make remittances to another country were forced to bid for
it one against another, the price of both silver and
exchange rose. As the silver supply was exhausted,
increases in the bills of credit in circulation caused
proportional increases in the price of silver and bills of
exchange, unless the increased volume of trade, by
absorbing the circulating medium, retarded the rise. 
In New York and Pennsylvania, where custom had rated the
Spanish milled dollar at 8s. and 7s. 6d., respectively, the
ratio of the colonial value of the dollar to the sterling
value determined the colonial par of exchange. The
effective par, however, fluctuated with the London price of
silver, being determined by the London price and the silver
content of the dollar. Under such conditions, fluctuations
in the exchange rate were confined to the distance between
the specie points, which, in turn, varied with the cost of
shipping silver. Since these costs, particularly insurance,
were greater in time of war, the exchange rate fluctuated
The basic cause of this fluctuation was the same as that in
New England during the early years of the century. An
increased circulation of bills of credit created purchasing
power and led to increased imports from Britain. When these
imports were paid for, the demand for bills of exchange
increased and the price was bid up. If, however, Britain at
the same time was transferring funds to America to finance
the war, the additional supply of bills of credit arising
from this source might not only keep the exchange rate from
rising, but induce it to fall. But when the transfer of
British funds ceased and the full force of the demand for
bills of exchange occasioned by the increased imports was
released, exchange rose. 
The internal price level, however, bore no relation to the
increase in the exchange rate, or to the increases of the
price of those commodities that were imported or exported.
Internal prices rose to two or three times their prewar
In a colony where a specie standard prevailed and bills of
credit were not issued as war finance measures, as was the
case in Massachusetts between 1750 and 1775, the price of
exchange fluctuated in harmony with that in New York and
Pennsylvania, but the fluctuations were not so great. In
all probability internal prices rose to a considerable
degree, although in the absence of direct evidence one
cannot say how they compared with internal prices in New
York and Pennsylvania. 
Virginia presents a complex and difficult case. Her trade
with the mother country was direct and her economic
fortunes were linked to the prosperity of the tobacco
trade. Although fluctuations in the value of the colony's
imports and exports from year to year influenced the
exchange rate, it is probable that, all things considered,
it was the substantial issues of bills of credit to finance
the colony's contribution to the French and Indian War,
that played the dominant role in causing Virginia's
exchange to break loose from silver and fluctuate more
widely than that of either Massachusetts, New York, or
The exchange rate of Massachusetts, New York, and
Pennsylvania fluctuated in harmony as is evident from
Figure V. That of Virginia also, to a degree at least,
fluctuated in harmony. During the French and Indian War the
agents of the money contractors sold bills of exchange in
all of the above colonies as long as they could be sold for
silver or gold. When Virginia's specie supply was
exhausted, contractors bills were no longer sold there; as
a result, exchange rose more than in the other colonies. 
One final conclusion emerges clearly: the quantity theory
of money is, indeed, useful in analyzing currency
practices, prices, and sterling exchange rates, not only
where runaway inflation is the issue, as Ernst contends,
but where it is not. 
1. [Editor's note] Robert Craig West, "Money in the
Colonial American Economy," Economic Inquiry, 16 [1978]
1-15; Bruce Smith, "American Colonial Monetary Regimes: The
Failure of the Quantity Theory and Some Evidence in Favor
of an Alternate View," The Canadian Journal of Economics,
18 [1985] 531-64; and "Some Colonial Evidence on Two
Theories of Money: Maryland and the Carolinas," Journal of
Political Economy, 93 [1985] 1178-1211; Elmus Wicker,
"Colonial Monetary Standards Contrasted: Evidence from the
Seven Years War," Journal of Economic History, 45 [1985]
869-84. Ron Michener, "Fixed Exchange Rates and the
Quantity Theory in Colonial America," Carnegie-Rochester
Conference Series on Public Policy, 27 [1987] 233-308;
Michael D. Bordo and Ivan A. Marcotte, "Purchasing Power
Parity in Colonial America: Some Evidence for South
Carolina 1732-1774: A Comment," ibid., 311-23; and Bennett
T. McCallum, Monetary Economics, Theory and Policy, New
York, 1987; and "Money and Prices in Colonial America: A
New Test of Competing Theories," Journal of Political
Economy, 100 [1992] 143-61. 
2. [Editor's note] The connection between the original and
revised estimates for Pennsylvania is subtle, and involves
a matter generally overlooked by those using colonial money
supply estimates. Ideally, one would like to know how much
currency was in the hands of the public. This is not known.
What generally exists are the dates and quantities of
currency authorized by colonial assemblies, and the dates
and quantities of currency burned. Most data series are for
the total authorized, minus the total burned, which only
approximates currency in the hands of the public. A time
lag existed between the authorization and the printing and
expenditure of currency, and another between the time
currency passed for the final time into the treasury and
its destruction. Also, currency might pass through the
colonial treasury several times between its initial
issuance and final destruction. Whatever sum was being held
by either the treasurer or land bank commissioners was out
of the hands of the public. In Pennsylvania, the
legislature noted the sums and dates of its expenditures of
newly authorized money. In the table presented here, Brock
used expenditures instead of authorizations to construct
his estimates, better approximating the ideal series. 
3. The Alderman Library at the University of Virginia
houses Brock's draft chapters, research notes, and
collection of primary and secondary source material.
Brock's draft chapters are available on microfilm by
writing the manuscript department and requesting "Brock
#10715, Manuscript for a book on currency." 
4. The Boston Evening Post of October 25, 1773 estimated
the peacetime cost of shipping specie to London at 6% :
2.5% for insurance and brokerage, 2.5% for commissions, and
1% for freight. 
5. Appendix to William Graham Sumner, A History of American
Currency, (New York, 1968), 362. 
6. Henry Thornton, An Enquiry into the Nature and Effects
of the Paper Credit of Great Britain, edited by F.A. Hayek
and Augustus Kelley (New York, 1978) 159, 244, 248, 259. 
7. Money and Politics in America, 1755-1775, (Chapel Hill,
1973), 5-7; "Colonial Currency: A Modest Inquiry into the
Uses of the Easy Chair and the Meaning of the Colonial
System of Freely Floating International Exchange,"
Explorations in Entrepreneurial History, 2nd Ser., 6 [1969]
8. Andrew McFarland Davis, ed., "Some Considerations Upon
the Several sorts of Banks Propos'd as a Medium of Trade,"
[1716] Colonial Currency Reprints (Boston, 1910, 1964),
9. Leslie V. Brock, The Currency of the American Colonies,
1700-1764, (New York, 1975), 18. 
10. Arthur H. Cole, Wholesale Commodity Prices in the
United States, 1700-1861,(Cambridge, Mass., 1938), wherein
the components of the several price indices are set forth.
Their inadequacy as a measure of the general level of
prices will be demonstrated below. 
11. Despite Ernst's statement to the contrary, the author
and Ernst have never been at variance on this point. 
Ernst wrote: "In holding rigidly to the quantity theory [of
money] and trying to show how monetary policy influenced
overall price levels, historians have tended to ignore the
other forces at work at the time and to overlook the
seasonal, short-run, and cyclical nature of colonial
prices. On the other hand they have also generally failed
to take into account the effect on exchange rates of swings
in the volume of British loans to America, shifts in
British wartime expenditures in the colonies, and changes
in the colonies terms of trade and volume of trade. The
most important example [of this] is Brock, Currency of the
American Colonies,"Ernst, Money and Politics, 6-7. 
Ernst, in the paragraph quoted, scarcely does justice to
the views expressed by in Currency of the American
Colonies, where many of the forces that Ernst mentions that
affect the price of foreign exchange are discussed by Brock
in his Colonial Currency. One may consult pages 58, 62-63,
and 352. 
12. William Douglass, "A Discourse Concerning the
Currencies of the British Plantations in America," [1740]
Colonial Currency Reprints, 3:320. 
13. Brock, Colonial Currency of the American Colonies, 23. 
14. Ibid., 30. 
15. Ibid., 29-30; Jonathan Belcher, "A brief Account of the
Rise, Progress and present State of the Bills of Credit in
New England," 1740, CO 5/ 881 part 2, ff. 199-204. 
16. Ibid., 25-26. The Mather quotation is from Mather to
Sir Peter King, December 22, 1714. 
17. The corresponding per capita unfavorable balances of
trade (imports minus exports) were: 0.38; 0.78; 0.48. 
18. "A Model For Erecting a Bank of Credit: With a
Discourse in Explanation thereof," [London, 1688] Colonial
Currency Reprints, 1:153-187; [Reprinted at Boston, 1714]
ibid., 209-237. 
19. "A Projection for Erecting a Bank of Credit in Boston.
Founded on Land Security," [Boston, 1714] ibid., 319-333. 
20. "The Country-Man's Answer, to a Letter Intitled, The
Distressed State of the Town of Boston Considered," [from
the Boston News-Letter, 18 April 1720] ibid., 409-412. 
21. Records of the Colony of Rhode Island and Providence
Plantation in New England, 1707-1740, John Russell
Bartlett, ed., (Providence, 1859) 4:379. 
22. John B. MacInnes, "Rhode Island Bills of Public Credit,
1710-1755," (unpubl. Ph.D. diss., Brown University, 1952).
MacInness is the most comprehensive study we have of the
Rhode Island currency. 
23. "Scheme or Articles upon which the Merchants and Others
have Acted, who are now giving out their Notes of Hand,"
Andrew McFarland Davis, "The Merchants Notes of 1733,"
Mass. Hist. Soc., Proceedings, 2nd Ser., 17 [1903] 204-8;
The New-England Weekly Journal, 1 April 1734. 
24. Thomas Hutchinson, The History of the Colony and
Province of Massachusetts-Bay,(Cambridge, Mass., [Mayo
Edition] 1956) 2:289. 
25. Ibid. 
26. [Editor's note] This paragraph has been rewritten
slightly for clarity. Brock's handwritten notes, and his
discussion in Draft of an Unfinished Manuscript for a Book
on Currency in Colonial America, "Massachusetts 1730-1741,"
(Alderman Library) 34-36, leave no doubt about Brock's
intended meaning. The premia mentioned in the text are
theoretical, based on Brock's present value calculations.
No actual citations are available for the market value of
merchants notes for these dates. However, contemporaries
remarked that once the merchants notes ceased to circulate
as a medium of exchange they were valued according to their
present value. Brock compared the citations that have
survived, from 1737-41, and found they correspond closely
with the value predicted by his calculations. Sources: Hugh
Vance, "Some Observations on the Scheme," [1738] Colonial
Currency Reprints, 3:209; Richard Fry "Scheme for a Paper
Currency," [1739] ibid., 3:270; William Douglass,
"Discourse," [1740] ibid., 3:348; "Postscript to a
Discourse," [1741] ibid., 4:50; "A Letter to a Merchant in
London," [1741] ibid., 4:71. 
27. Boston Evening Post, 13 June 1747; Boston Gazette, 8
December 1747. 
28. Arthur H. Cole, ed., Wholesale Commodity Prices in the
United States, 117. 
29. William Douglass, "Discourse," Colonial Currency
Reprints, 3:328-9. 
30. Brock, Colonial Currency of the American Colonies, 595. 
Wheat Price Ratio. 
Wheat was a commodity, the price of which fluctuated
greatly from year to year, even with a stable currency,
because the crop coming to market varied as a result of the
weather, infestations of "the fly" and "the rust," and
plantings, and also because it was the staple export
commodity in the chief producing colonies. Thus its
domestic price was determined by the supply, the demand at
home and abroad, and the prevailing exchange rate. 
To relate changes in the price of wheat as a result of a
sustained depreciation of the domestic currency
(inflation), it is necessary to iron out fluctuations in
price resulting from the factors indicated above. 
Pennsylvania was the chief colonial producer and exporter
of wheat, flour, and bread. New England, on net balance,
imported wheat, Massachusetts being the chief importer. One
can correct the Pennsylvania price for the depreciation its
currency underwent, as measured by the exchange rate, and
also for the annual fluctuations in the exchange rate from
non-monetary factors, by dividing the Philadelphia price by
the sterling exchange rate, thus obtaining the sterling
price. If the Boston price in Old Tenor is divided by the
Philadelphia sterling price, the result is a ratio that
reflects, rather accurately, the effect of the sustained
depreciation of the Massachusetts (and New England)
currency during the years for which the ratio can be
computed, 1720-1749. Of course, the ratio does not iron out
the effect upon the Massachusetts exchange rate and price
of silver resulting from non-monetary causes, such as the
sudden rise in 1729, and the fall in 1730, when "the usual
Returns to Great Britain turned to bad Account" in 1729,
but recovered in 1730. 
One should note the extent to which the Wheat Ratio line
parallels the Silver Price and Bills of credit lines on the
31. Douglass, "Discourse," Colonial Currency Reprints,
32. This and the next sentence is added by the editor as a
substitute for a lengthy discussion by Brock where, using a
complicated and confusing formulation, he argued against
the idea that the silver price was equal to the volume of
the money supply divided by the volume of trade. For the
text see the original manuscript, Alderman Library. 
33. "An Enquiry Into the State of the Bills of Credit Of
the Province of the Massachusetts-Bay in New England: in a
Letter from a Gentleman in Boston to a Merchant in London,"
[Boston, 1743-44] Colonial Currency Reprints, 4:195-196. 
34. J. Wright, The American Negotiator: or the Various
Currencies of the British Colonies in America, (London,
1761) vii. The Massachusetts exchange rates are to be found
in John J. McCusker, Money and Exchange in Europe and
America, 1600-1775. A Handbook (Chapel Hill, 1978) 140-141.
The silver equivalent at the market price of silver in
London is to be found in McCusker, 151-152. The McCusker
compilation is a magnificent monument to the application of
diligence and competence to a very difficult field. It is
an indispensable tool for anyone working in the field of
American colonial currency. Gaps in the McCusker
compilation of the market price of silver in London for the
early years of the 18th century have been filled in from K.
N. Chauduri, "Treasure and Trade Balance: The East India
Company's Export Trade, 1660-1720," Economic History
Review, 2nd Ser., 21:500. 
35. Benjamin Franklin to William Parsons, 28 June 1756. The
Papers of Benjamin Franklin, Leonard Larabee, ed., (New
Haven, 1965--) 6:465-466. 
36. [Editor's note] The percentage increase in New York
imports originally given in the MSS was 503%, and for
Pennsylvania, 520%. Since there were reasons for suspecting
an error, I revised them, using Jacob Prices "New Time
Series for Scotland's and Britain's Trade with the Thirteen
Colonies and States, 1740-1791," William and Mary
Quarterly, 3d ser., 32 [1975] 322-25. 
37. Benjamin Franklin to Richard Jackson, 8 March 1763,
Franklin Papers, 10:209. 
38. W. T. Baxter, The House of Hancock, (New York, 1965)
39. Benjamin Franklin to Richard Jackson, 8 March 1763,
Franklin Papers, 10:209. 
40. New Jersey Archives, 1st Ser., 9:384. 
41. Italics added. 
42. Stanley Pargellis, ed., Military Affairs in North
America, 1748-1765, (New York & London, 1936) 41. 
43. [Editor's note] These numbers come from Table VII, and
were revised along with Table VII. 
44. Historical Statistics of the United States, Colonial
Times to 1970,(Washington, D.C., 1975) part 2, 1176. 
45. "The New York Merchants proved to their General
Assembly in 1764, from original invoices from Great
Britain, that for the three preceding years they had
imported what they were charged 1,500,000 for, while the .
. . Custom House account for those 3 years makes it no more
than 1,042,024, and . . . the Merchants of Pennsylvania at
the same time and on the same occasion [for repealing the
Stamp Act] proved their imports from Great Britain . . .
for the said 3 years to be about 1,500,000 also, when the
[Custom House] account of exports makes it no more than
925,544 . . ." Thus it appears that the current value of
imports was approximately one-half greater than the
official values; hence, the unfavorable balances of trade
of both New York and Pennsylvania have been multiplied by
1.5 to obtain the current value. Benjamin Franklin to the
London Chronicle, 3 November 1768, Franklin Papers, 15:253. 
46. Money contractors payments, 1,522,199, New York and
Pennsylvania portion victualing costs, 847,873,
Parliamentary reimbursements, 93,224--total, 2,463,296. The
portion of the victualing cost allocated to New York and
Pennsylvania was the same as the proportion that the New
York money contractors payment bore to the total money
contractors payment in America (70.2%). Money Contractors
Declared Accounts, A.O. 1/190-582; Account of Sir William
Baker for Victualling the Army in North America, Aug. 16,
1756--March 25, 1760 [actually 1765]; Account of John
Thomlinson and John Hanbury, Contractors for providing
Money for the Subsistance and Payment of the Land Forces
sent from Great Britain and Ireland to Virginia and other
parts of North America, 24 December 1754--27 May 1757, T.
1/377, f. 153; 39 George II., c. 29; T. 52/501, 287-291; 33
George II., c. 18. 
47. The British payments, 1761-1762, consisted of the
following: New York money contractors payments, 340,904
sterling, Pennsylvania money contractors payments, 260,000
sterling, a total of 600,904 sterling; New York and
Pennsylvania's proportion of the cost of victualing the
British forces in North America, 168,963 sterling;
Parliamentary reimbursements, 112,847--882,714 sterling.
Money Contractors Declared Accounts, A.O. 1/190-582;
Account of Sir William Baker for Victualling the Army in
North America, Aug. 16, 1756--March 25, 1760 [actually
1765]; Parliamentary reimbursements, 29 George II., c. 29;
31 George II., c. 33; T. 52/50, 287-291, T. 52/51, 244.
Pennsylvania Votes and Proceedings, 7:5915. 
48. Beekman Mercantile Papers (New York, 1956), 2:534, 539,
544, 567, 577, 580, 581, 739, 825-6, 901, 905-6. 
49. To Gedney Clarke, "Letter Book of John Watts,
1762-1765," New York Hist. Soc., Collections, 61:204-205. 
50. Acts and Resolves of the Province of Massachusetts Bay,
3 [1878] 430-41. 
51. Brock, Colonial Currency of the American Colonies,
52. Ibid., 254-255. 
53. Acts and Resolves of Massachusetts Bay, 3:717-719. 
54. Hutchinson, History, 3:7. 
55. Brock, Colonial Currency of the American Colonies, 273. 
56. C.O. 323/19. 
57. [Editor's note] Winifred B. Rothenberg, "A Price Index
for Rural Massachusetts, 1750-1855," Journal of Economic
History, 39 [1979] 983, table 2, reveals considerable
yearly fluctuations in prices received by farmers, but no
striking trend in this period. If anything, prices are
somewhat higher in the post-war years than during the war. 
58. [Editor's note] 

Correlations for Series in Figure VNew York exchange rate
on LondonPennsylvania exchange rate on LondonMassachusetts
exchange rate on LondonPennsylvania exchange rate on
London.927Massachusetts exchange rate on London.606.547Par
of Exchange.330.321.021
59. Historical Statistics of the United States, part 2,
1176. Separate import and export figures for Massachusetts
are not available. In all probability, however,
fluctuations in Massachusetts imports from England
corresponded to the fluctuations in New England's imports.
British expenditures in Massachusetts increased the
monetary circulation and, as a result, increased purchasing
power that doubtless led to increased imports from England.
Imports from England were chiefly introduced into New
England through Massachusetts or, to some degree, through
New York. Connecticut, which emitted sizable issues of
bills of credit during the French and Indian War, was not
engaged in direct trade with England. During the period,
Rhode Islands sizable issues of bills of credit underwent
rapid depreciation that eroded away their purchasing power
and thus canceled out any influence they may otherwise have
had on imports. The new tenor issues of New Hampshire
emitted from 1755 to 1757 underwent depreciation with
similar effects. The New Hampshire sterling bills of credit
emitted from 1758 to 1762 appear, however, to have
maintained their value. 
60. [Editor's note] I cannot determine the source of the
estimate of the unfavorable balance of trade of New
England, and the numbers given are quite different from
other estimates. For example, using Jacob Prices data, and
without multiplying by 1.5, gives a figure for 1755-60 of
2,496,120, and for 1761-6 of 1,643,586. See "New Time
Series for Scotland's and Britain's Trade," William and
Mary Quarterly, 3d ser., 32 [1975] 322-25. 
61. The official value of the unfavorable balance was
transformed into current values by multiplying it by 1.5. 
British payments, 1755-1760, consisted of money contractor
payments, 667,346 (.40 x 1,668,365), victualing payments,
144,936 (.12 x 1,207,796), Parliamentary reimbursements,
212,265--total 1,024,547 sterling. Money Contractors
Declared Accounts, A.O. 1/190-582; Account of Sir William
Baker for Victualling the Army in North America, Aug. 16,
1756--March 25, 1760 (actually 1765); Account of John
Thomlinson and John Hanbury, Contractors for providing
Money for the Subsistance and Payment of the Land Forces
sent from Great Britain and Ireland to Virginia and other
parts of North America, Dec. 24, 1754--May 27, 1757, T.
1/377, F. 153; Parliamentary reimbursements, 29 George II.,
c. 29; 31 George II., c. 33; T. 52/50, 287-291; T. 52/51,
The British payments, 1761-1762, consisted of money
contractors payments, 56,537 (.40 x 141,343), victualing
payments, 84,908 (.076 x 1,117,207), Parliamentary
reimbursements, 180,527--total 321,972. Money Contractors
Declared Accounts, A. O. 1/190-582; Account of Sir William
Baker for Victualling the Army in North America, Aug. 16,
1756--March 25, 1760 (actually 1765); Parliamentary
reimbursements, 29 George II., c. 29; T. 52/50, 287-291; T.
52/51, 244. 
62. [Editor's note] If there was "no stock of circulating
specie" in the colony for the paper to supplant, as Brock
says, why did a huge percentage increase in the supply of
money result in only modest inflation? I disagree with
Brock's statement, and feel that he could have made better
use of Virginia's experience to establish his principle
thesis: that offsetting specie flows helped keep inflation
within bounds. 
Even without paper money, the stock of circulating specie
in Virginia was highly variable, fluctuating in response to
the state of the tobacco market. This we know from John
Hemphill's excellent study Virginia and the English
Commercial System, 1689-1733, (New York, 1985). John Mairs
Book-keeping Methodiz'd (3d edition) describes Virginia in
the late 1740's as abundantly supplied with circulating
specie. Yet on the eve of the French and Indian War, and
before any paper money was emitted, Francis Jerdone wrote
that "the gold & silver which was current in the country a
few years ago is now chiefly vanished." A partial answer as
to why there was not more inflation is that the stock of
specie in Virginia was not chronically small, but rather
had been at a low ebb when emissions of paper money began.
The people of Virginia were willing to hold more money at
the existing price level, and had paper not been supplied,
would probably have managed their affairs so as to acquire
more specie. 
At the beginning of the French and Indian war, specie,
though scarcer than it had been a few years earlier, still
circulated. As Virginia issued paper money, her remaining
specie disappeared. Corbin wrote in 1762 that "upon the . .
. large Emission in 1757 almost the whole Species of Gold
and Silver which was in the Colony disappeared and Exchange
kept rising." The problem would continue, Corbin
maintained, as long as the quantity of money issued
continued to "exceed the Demands of Trade." This was a
commonly held view in colonial Virginia. Even those who
attributed the disappearance of specie to the vagaries of
trade admitted that people often blamed paper money because
of the close coincidence in timing. In January 1759,
Francis Fauquier commented that in the seven months since
his arrival in Virginia, all the specie he had seen,
gathered together in a heap, would not amount to 100
sterling. Burnaby, who visited in the summer of 1759,
blamed paper money, and said there was "not a pistole or a
dollar remaining." 
Sources: Francis Jerdone to Capt. Hugh Crawford, 12
September 1754, William and Mary Quarterly, 3d ser., 14
[1957] 144-45; Richard Corbin's memorial (1762) to the Lord
Commissioners of the Treasury, CO 5/1330, 256; Rinds
Virginia Gazette, 26 April 1770; Purdie and Dixon's
Virginia Gazette, 4 December 1766; Francis Fauquier to the
Lords of Trade, 5 January 1759, CO 5/ 1329, 169; Rev.
Andrew Burnaby, Travels through the Middle Settlements in
North America in the years 1759 and 1760, [1775, 2d
edition] (reprint, Ithaca, N. Y., 1968) 29. 
63. William Waller Hening, Statues of Virginia, 4:218-220
(1 George II., c. 9). 
64. [Editor's note] Suspecting an error, I replaced the
original trade figures for New York (318%) and Pennsylvania
(365%) with numbers derived from Prices "New Time Series
for Scotland's and Britain's Trade." Brock's construction
of the Virginia trade figures is described in a later
65. The Papers of George Washington, "Ledger A," Library of
66. Calculation of the sterling value of Virginia exports. 
From the 2s./hhd. duty &c. on tobacco exports, it is
possible to calculate the number of hogsheads of tobacco
exported annually for the year ending October 25. The
revenues produced by the 2s.hhd./ duty &c. included
revenues other than those arising from the 2s. duty. Thus,
it is necessary to adjust the gross figure of hogsheads
exported derived by dividing the gross revenue by 2s. It is
possible to do this because for the years 1745 to 1756 we
have the figures for annual exports from another source,
and likewise, for the years 1769 and 1770. If the average
of the annual exports from the independent source be
divided by the average of those for the corresponding years
calculated from the revenues of the 2s./hhd., the result
will be .8284. The gross calculation of the annual
hogsheads exported is then multiplied by .8284 to obtain
the adjusted calculation. This will be found, on the
average, to be accurate within .99 of 1%. Assuming 1,000
pounds to be the weight of a hogshead, the value of the
annual export in Virginia currency is then calculated. The
prices used were obtained from the ledgers of Edward Dixon,
in the Library of Congress. Dixon was a Port Royal,
Virginia, merchant. The ledgers covered the years,
1743-1774. The value of the annual exports in Virginia
currency thus obtained was reduced to sterling by dividing
it by the average annual exchange rate expressed as a
decimal. The average annual exchange rate was calculated
from monthly quotations collected by the author and by John
J. McCusker. 
The official value of British tobacco imports was
calculated by multiplying the number of pounds imported
into England by 2 1/4d. and the number imported into
Scotland by 2 1/2d. The figures for tobacco imports were
obtained from Jacob M. Price, France and the Chesapeake
(Ann Arbor, 1973) 2:844. The annual official value of
British tobacco imports from Virginia was subtracted from
the official value of all imports to obtain the value of
British imports from Virginia other than tobacco. To this
figure was then added the current sterling value of
Virginia tobacco exports to Britain to give the total value
of Virginia exports to Britain. Since the official value of
British exports to Virginia and imports from Virginia is
not available, the figures being given for Virginia and
Maryland jointly, Virginia was apportioned two-thirds of
the joint exports and imports. To the figures for imports
from Britain was added the current value of the imports of
slaves. The number of slaves imported annually was obtained
from Historical Statistics of the United States, 2:1172;
the price of slaves imported was obtained from ibid., 1174.
The annual imports from, and exports to, Britain from
Virginia are to be found in William and Mary Quarterly, 3d
Ser., 32 [1975] 322-325. Virginia's unfavorable balance of
trade for the years, 1755-1761, was then calculated. 
The total British aids for the same period was then
calculated. These consisted of sums transferred by the
money contractors in 1757 and the Parliamentary
reimbursements for the years, 1758-1762. 
67. Ernst, Money and Politics, 7, 356. 
68. Correspondence Between William Penn and James Logan,
1700-1750, [March 1755] (Philadelphia, 1870) 1:368. 
69. Letter Book of John Watts, 1762-1765, New York Hist.
Soc. Collections, 61 [1911] 308. 

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