Commodity Money (American Colonies)

Commodity Money (American Colonies)

Stable commodities produced in the American colonies often filled the gap in the colonial money supply left by the outflow of most hard specie for European goods. Colonial assemblies sanctioned commodity money as legal tender and set the price of commodities for the retirement of public debts.

Typical of colonial assembly legislation sanctioning the use of commodity money was an act of the South Carolina assembly adopted in 1687. This act read:

that all debts, accounts, contracts, bargains and judgments, and executions thereupon which are not made expressly for silver or money or some other particular commodity att a certain price shall and may bee paid and discharged by Corne att two shillings the bushel, Indian Peas at two shillings six pence the bushel, English Peas at three shillings sixpence the bushel, Pork at twenty Shillings per cwt., Beefe at twopence the pound, Tobacco at two pence the pound, Tar at eight shillings per barrell.

(Brock, 1975)

Around the same time New York allowed pork, beef, and winter wheat to serve as money, and east New Jersey included wheat, Indian corn, butter, pork, beef, and tobacco as commodity money. New Hampshire’s list of commodities serving as money for the years 1701 through 1709 had eight kinds of boards or staves and four kinds of fish, as well as pork, beef, peas, wheat, and Indian corn. The Caribbean colonies often made use of sugar as a medium of exchange, and tobacco dominated the commodity money supply in Maryland and Virginia. Curtis P. Nettels quotes a statement from the Virginia House of Burgesses regarding the salaries of the clergy, which states that “[f]or every marriage by license the laws give them twenty shillings or two hundred pounds of tobacco and if at a private house they marry any person they have for it one hundred pounds of tobacco at least” (Nettels, 1934). The difference between a marriage by license and a marriage at a private house is unclear, but tobacco was an important means of paying clergy.

Colonial assemblies set legal prices for all public payments, such as taxes, but prevailing market prices often set the rate for all private payments. Colonial assemblies invariably set the legal prices for public payments above the market prices, often chafing public officials who received income in commodity money at legal prices. The higher the legal price of a commodity relative to its market price, the smaller would be the quantity of the commodity received by the public official.

One of the problems with the use of commodity money is that commodities often vary substantially in quality. Creditors and government officials in jurisdictions that allowed commodity money often found themselves pressured to accept low-quality commodities in payment. To address this problem, the colony of New Haven (later absorbed into Connecticut Colony) in 1654 required that on:

every plantation there shall be a viewer of corn, that in case of difference may judge, whether it be well dressed and merchantable or no, which man is to be chosen by each plantation, and shall be under oath to judge faithfully when called to it, and is to be paid for his time spent and pains therein by him whose corn is faulty, or who unnecessarily occasions the trouble.

(Nettels, 1934)

Connecticut adopted a similar measure for both grains and pork. In Virginia and Maryland a debtor presenting tobacco to a creditor who refused to accept it could ask for two impartial judges. If these judges declared the tobacco good and merchantable, and the creditor still refused to accept it, the debt was counted as paid.

Another problem associated with commodity money is the expense and difficulty of transporting it. In the Massachusetts Bay Colony the General Court said that in the case of cattle driven to Boston for payment of taxes:

if they be weary, or hungry, or fall sick or lame, it shall be lawful to rest and refresh them for a competent time in any open place, that is not corn,meadow or inclosed for some particular use.

(Nettels, 1934)

The widespread use of commodity money reveals the severity of the shortage of coins and other forms of money in the American colonies. It shows that forms of money will develop from the ground up when governments fail to infuse economies with sufficient money to finance trade.