Money and Banking in the Atlantic Economy

by

Jane Knodell

• LAST REVIEWED: 28 March 2018
• LAST MODIFIED: 28 March 2018
• DOI: 10.1093/obo/9780199730414-0289

Introduction

This article gives the reader an entry into the history and economic history literatures on money and banking in the Atlantic economy between the 18th and mid-19th centuries. This period saw an increasing dissemination of money into economic relationships with the spread of markets. The growth of the Atlantic economy depended on the expanding production and circulation of money in its various forms. This article is organized by four types of money: commodity monies, particularly money made from silver and gold; bills of exchange; paper money issued by governments (“fiat money”); and paper money issued by banks (“bank notes”). These money forms coexisted in different combinations over time and in different parts of the Atlantic zone. By the end of the period under review here, paper money issued by banks was the fastest growing part of the money supply, but silver and gold were still the “best” kind of money, the kind of money one wanted to hold during uncertain times. All areas of the Atlantic economy relied on money, some more than others. The solutions that were available varied according to different factors: whether a place controlled its own monetary destiny as an imperial power, or didn’t, as a colony; whether it had affordable access to the mining and minting of precious metals; whether its populace had confidence in governments’ and bankers’ paper money. South America was the primary producer of the gold and silver demanded by other regions of the Atlantic and beyond. This was a specialization grounded in its endowments and enhanced by technological and managerial improvements. Other regions spawned paper money issuance, such as the fiat money of the North American colonies, the joint-stock bank money of the new United States, and the central bank money of the Bank of England. Throughout the Atlantic economy, war was a major impetus to expanded production of money and to innovation of new money forms.

General Overviews

Political authorities in England and Europe, before and after the formation of nation-states, adopted monetary standards that set the value of money (pounds, francs, and so forth) in terms of both gold and silver. These “bimetallic” systems extended to the New World. Redish 2000 is an economic history of five hundred years of bimetallism. While money made from precious metals was grounded in political authority, bills of exchange were grounded in trust relationships within merchant networks. McCusker 1978 provides a wealth of information about the markets in bills of exchange that connected different centers in Europe to monetary centers in the Americas. In the Americas, colonial monetary institutions were shaped by the practices and policies of the imperial powers, then were adapted to the needs of new nations. Perkins 1994 provides a history of this evolution for North America.

• McCusker, John J. Money and Exchange in Europe and America, 1600–1755. Chapel Hill: University of North Carolina Press, 1978.

  Colonial merchants in America made payments to creditors using bills of exchange payable in London, Cadiz, Paris, and Amsterdam, or, if bills were unavailable, in silver or gold. This source provides data on the price of bills of exchange on various European cities in different places in the Americas, primarily North America. The text provides useful guides to financial instruments and practices.

• Perkins, Edwin J. American Public Finance and Financial Services, 1700–1815. Columbus: Ohio State University Press, 1994.

  Treats all aspects of money and finance in the northern colonies from the early 18th century into the early national period. Overview of coinage, fiat money, commercial banking, insurance, and public debt markets.

• Redish, Angela. Bimetallism: An Economic and Historical Analysis. Cambridge, UK: Cambridge University Press, 2000.

  Shows how metallic money systems using gold, silver, and copper addressed the need for money with large and small denominations. Tracks the transition from bimetallism (a system based on silver and gold) to the gold standard, and from metallic money to paper money, in England and France. Stresses the role of technological improvements in minting and enhanced fiscal capacity to explain these large historical transitions.