The Political Economy of Money Production in the Colonial Americas, 1600–1800

This paper examines the role that institutions and factor endowments played in the organization and performance of two colonial coinages. Massachusetts Bay and Peru provide a useful study in contrasts, located in different empires and having markedly different resource endowments. Relying on a mix of primary and secondary sources, we show that monetary institutions were a product of negotiation and bargaining in both realms, although the channels and means of negotiation were quite distinctive. Ad-hoc and transitory mechanisms plagued the Spanish American enterprise, whereas relatively well-defined formal institutions predominated in Massachusetts. The Massachusetts Bay government successfully balanced the interests of the mint masters (the suppliers of the coin) and the users of coinage. Massachusetts did not debase its coinage even in wartime. In contrast, in Peru, the merchants were both the suppliers of silver and the producers of coinage, forming a vast network that dominated money circulation in the viceroyalty. We show that fraud and contraband were widespread as a result. In the Peruvian viceroyalty, the state’s greater emphasis on the fiscal purpose of money as an export good led to the neglect of the colonial economy’s monetary needs. In Massachusetts, the colonial state was willing and able to switch to paper money as both a fiscal resource and a currency for the local economy.