Working Paper: NBER ID: w12835
Authors: Peter L. Rousseau
Abstract: Among the thirteen original colonies, Pennsylvania was most successful at issuing paper money with only minimal effects on prices -- so much so that the colony's experience is sometimes seen as violating the classical quantity theory of money. Quantity theorists usually attribute this apparent anomaly to mismeasurement of the money stock. In contrast, I use data on money, prices, and real activity in Pennsylvania from 1723 to 1774 and for the United States as a whole from 1790 to 1850 (when the money stock is better measured) to show that the long-run behavior of money and prices is well explained by the quantity theory in both periods, despite the differences in institutional arrangements, once growth in monetized transactions is taken into account.
Keywords: No keywords provided
JEL Codes: E31; E42; N11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| money supply (M) (E51) | real monetized transactions (Y) (E39) |
| real monetized transactions (Y) (E39) | price levels (P) (E30) |
| money supply (M) (E51) | price levels (P) (E30) |
| issuance of paper money in Pennsylvania backed by real bills (E42) | price levels (P) (E30) |