New working paper: Monetary Famine, Paper Money, and International Constraints on Economic Growth: The Case of Colonial Quebec

As I mentioned in the preceding post, my paper with Bryan Cutsinger and Mathieu Bédard on the strange history of the playing card money episode of New France has been accepted at European Review of Economic History. However, there is much more to be said about the strange episode especially at it relates to economic growth. Thus, Gabriel Mathy (American University) and I endeavored to complete the circle by writing up a paper exclusively on economic growth and paper money in colonial Canada. The paper is here on SSRN and the abstract is below. For those who are attending the meetings of the Canadian Economic Association (CEA), we will be presenting this paper in the panel organized by the Canadian Network for Economic History:

New France, like most European colonies in the New World, suffered from a persistent shortage of metal coins. As Quebec could only legally import from France, their standards of living were constrained by their ability to export a few primary products (mostly fur, cod, timber and wheat). Mercantilist restrictions and underdeveloped financial markets limited the ability to use the capital account to import coins and tightened the balance of payments constraint. The introduction of playing card money in New France in 1685, the first use of paper money in the West, provided a means of relaxing this constraint. It produced a substitute domestic money which allowed scarce metal coins to be used to purchase imports. The balance-of-payments constrained growth models that grew out of Thirlwall’s Law is applied to this experience, with discussions of the export constraints of Quebec’s reliance on a few primary exports (with furs being the most dominant one) with inelastic demand and facing the vagaries of changing tastes in Europe.

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