Money In Colonial America

Money in colonial America

2/14/07 9:58 AM

Four functions of money it serves as a medium of exchange •it is accepted for exchange in the US money is Legal Tender it must be accepted by law it is a unit of account •20 lbs for a hat is an example of unit of account It performs a store of value •it allows you to accumulate wealth ex:100 pounds in your savings It is acceptable as a standard of deferred payment •debt obligations are written in terms of money value even though at thetime of the revolutionary war income in the colonies were higher than in England m especially after tax incomes money supply came in many forms in the colonies a lot of different things are substituted for money •e.g. animals skins, rocks, ETC but the only requirement for money is acceptability historically, some types of money tended to be more preferred •Specie-a gold or a silver coin leads the list during colonial times •bimetallic means two metals monetary standard for oins which could not be legally exported from the UK so silver coins of the Spanish •each state is going to have its own currency if you have a shortage of gold or silver coins you have to fin other means of payment payment in colonial times could be made in other ways •the main method was the Bill of Exchange (a date ordered to pay for something) oe.g.,A sells rice to “B” for £100 they write out a bill of exchange that says “B” will pay £100 in three months and “B” says the bill “A” has the bill of exchange, a promise to be paid from person “B” “A” could wait until maturity ad wait for three months from now, or “A” could sell it to someone else , person “D” for cash for a discount before maturity, depending on the current interest rate. And maybe sell it for £98. Then “D” holds it to maturity and collects £100 The bill of Exchange increased money supply and as an excellent source of money o“A” could also exchange the bill of exchange say to person “E” for £100 of tobacco then “E” would wait until maturity then collect £100 from person “B” •Payment in Kind

opayments could be made in corn wheat, skins and livestock oone exxampple was livestocks payments for tuition at Harvard college •Gresham’s law payments in kind could cause a shortage in specie people haord gold coins because they could pay wth a sick goat or a pile of your own tobacco leaves Paper money •Europe stopped using paper money in the year 1500 •in 1690 the government of massachusetts issued paper monet. The Govt needed to pay soldiers and had no specie for payment. •in the beginning they paid them with bonds •hence FIAT money- it has the full faith of the government paper money with no specie backing •soon sc COnn NY NH NJ followed •problems with paper currency ocounterfeiting o

2/14/07 9:58 AM

2/14/07 9:58 AM