Colonial Pennsylvania Commodity Prices and the Quantity Theory of Money

Sammanfattning: The Quantity Theory of Money (QTM) has been one of the most long-standing and controversial ideas in economics. Economic historians have analyzed many different times and eras to see if it holds, with varying conclusions. One particular era has remained particularly contentious: colonial America. In the 1700s, the British North American colonies all had different monetary systems and currencies, and at times, issued very large amounts of money. And yet, some authors have found little to no response from prices to these changes in the money supply, an apparent direct violation of QTM. Others have contended strongly that colonial American history is perfectly consistent with QTM, and that conclusions otherwise simply come from mishandling of the data. This paper traces the history of the colonial monetary regimes and the debate about them to the present day, and offers a new approach to solving the puzzle. For the first time, instead of overall price indices, time series for many individual commodities in the colonial era are analyzed. The results show that domestically produced goods, and goods that are more expensive on average, are more likely to show a correlation than imported or cheap goods. These structural complexities are a clear issue for QTM, which appears to be too simple a theory to fully explain complex economies.