The Depreciation of the Continental: A Reply

Calomiris, Charles W.

There are two ways to interpret Ron Michener's comment on my article. One is to
view it as an analysis of the difficulties of estimating money demand and of identifying the relevant components of money supply during the colonial and Revolutionary periods, both of which would be necessary to draw firm conclusions about the time path of aggregate real money balances from 1774 through 1781. Another way to read the comment is as a disproof of the importance of fiscal expectations in determining the market value of the continental. Taking the first view, Michener's contributions and caveats are often well taken, though it was never my intent to estimate (or even describe in detail) the time path for the overall supply or demand for liquidity during this period.

My discussion divides into three parts. First, I clarify aspects of my work, and that of
others, which Michener misinterprets. Second, I show that Michener's evidence
actually supports the importance of fiscal news, and that the quantity theory of
aggregate money does not offer an alternative to my (and others') explanation for
changes in the value of the continental. Finally, I take issue with Michener's evidence for real balance stability.

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Journal of Economic History

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August 9, 2011