A transaction-cost model of chronic specie scarcity and the evolution of monetary structures in constrained colonial economies

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Author(s)Grubb, Farley
Date Accessioned2025-04-25T15:31:42Z
Date Available2025-04-25T15:31:42Z
Publication Date2025-02-06
DescriptionThis article was originally published in Cliometrica. The version of record is available at: https://doi.org/10.1007/s11698-025-00304-y. © The Author(s) 2025. Open Access This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article's Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article's Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.
AbstractA transaction-cost model of monetary choice is used to justify colonists’ claims that specie money for executing within-colony trades and paying local taxes was chronically scarce in Britain’s pre-nineteenth century North American colonies. This scarcity is shown to be the result of individual rational maximizing choice behavior given the constraints imposed on the colonies by their mother country. By contrast, the conventional quantity-theory-of-money, specie-flow model indicates that a chronic specie scarcity equilibrium is impossible. Implicit assumptions in the quantity-theory-of-money model are shown to not apply to these colonial economies. The transaction-cost model developed here builds on the Walrasian–Arrow–Debreu general equilibrium model by incorporating transaction costs and media-of-exchange structures into the market clearing mechanism. Specie (outside money) and non-specie-money media-of-exchange structures (inside monies), which have differing transaction costs, are added to the model. Those additions, along with import substitution and trade-control constraints, identify the plausible circumstances that yield a chronic specie scarcity outcome in a colony. Whether the individual rational maximizing monetary choices that produce chronic specie scarcity in a colony lead to sub-optimal or to optimal social welfare outcomes in that colony depends on what non-specie media-of-exchange structures emerge as the inside money in that colony.
SponsorPreliminary versions were presented at the Third European Congress on World and Global History, London School of Economics, London, UK, 14-17 April 2011; The Institute for Global Law and Policy Pro-Seminar on Re-Theorizing Liquidity, Harvard Law School, Cambridge, MA, 6-9 June 2011 and 2 June 2012; the Conference on “De-Teleologising History of Money and Its Theory,” Japan Society for the Promotion of Science Research—Project 22330102, University of Tokyo, 14-16 February 2012; University of Delaware, 11 October 2012; Allied Social Science Associations Annual Conference, San Diego, 5 January 2013; and the conference on “Money as a Democratic Medium,” Harvard Law School, Cambridge, MA, 14-15 December 2018; Conference on “Money in Vast Early America,” sponsored by the University of Southern California, the Huntington Early Modern Studies Institute, and the William and Mary Quarterly held at the Huntington Library, Pasadena, CA, 9 Dec. 2023. The author thanks the participants of these conferences and Christine Desan, Alejandro Komai, Akinobu Kuroda, and Angela Redish for helpful comments. This article honors the influence of Douglass C. North whose graduate courses in economic history and property rights I took in the mid-1970s.
CitationGrubb, F. A transaction-cost model of chronic specie scarcity and the evolution of monetary structures in constrained colonial economies. Cliometrica (2025). https://doi.org/10.1007/s11698-025-00304-y
ISSN1863-2513
URLhttps://udspace.udel.edu/handle/19716/36082
Languageen_US
PublisherCliometrica
dc.rightsAttribution 4.0 Internationalen
dc.rights.urihttp://creativecommons.org/licenses/by/4.0/
Keywordscolonial economies
Keywordsgeneral equilibrium
Keywordsmonetary systems
Keywordsspecie scarcity
Keywordstransaction costs
TitleA transaction-cost model of chronic specie scarcity and the evolution of monetary structures in constrained colonial economies
TypeArticle
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