Colonial New Jersey's Paper Money Regime, 1709–75: A Forensic Accounting Reconstruction of the Data

Abstract. Forensic accounting is used to reconstruct the data on emissions, redemptions, and bills outstanding for colonial New Jersey paper money. These components are further separated into the amounts initially legislated and the amounts actually executed. These data are substantial improvements over what currently exists in the literature. They also provide a more complete and nuanced accounting of colonial New Jersey's paper money regime than what has been done previously for any British North American colony. Enough detail of the forensic accounting exercise is given for scholars to reproduce the data series from the original sources.Keywords: bills of creditforensic accountingland banksloan officesNew Jerseypar valuepaper moneyzero-coupon bonds AcknowledgmentsPreliminary versions were presented at Harvard Law School, Wake Forest University, the Paris School of Economics, University of Delaware, and the 2013 meeting of the American Studies Association. The author thanks the participants and Ray Williams for helpful comments. Tracy McQueen provided editorial assistance.Notes1. Banking structures successfully emitting paper banknotes backed by fractional specie reserves would not appear in English-speaking North America until near the end of the American Revolution. The first joint-stock specie-based bank was the Bank of North America chartered by Congress and by various states in 1781 (Hammond Citation1957, 3–64).2. For example, see Grubb (Citation2004, Citation2006a, Citation2006b); Hanson (Citation1979); McCallum (1992); Michener (Citation1987, Citation1988); Michener and Wright (Citation2006a, Citation2006b); Officer (Citation2005); Perkins (Citation1988, 163–86); Rousseau and Stroup (Citation2011); Smith (Citation1985a, Citation1985b, Citation1988); Sumner (Citation1993); Weiss (1970); West (Citation1978); Wicker (Citation1985).3. For general information on forensic accounting, see Crumbley, Heitger, and Smith (Citation2013); http://www.forensicaccounting.com.4. For example, the annual treasury reports for the colony of New Jersey do not provide a comprehensive tracking of the satisfaction of listed payment arrears, nor a comprehensive or easy-to-follow accounting of the redemption and removal of bills from circulation. Compare the annual treasury reports in Documents Relating to the Colonial History of the State of New Jersey (Citation1890) 14: 51–2, 119–26, 303–7, 375–80, 413–5, 439–49, 491–7; (1891) 15: 68–78, 122–3, 173–82, 258–63, 305–7, 362–7, 562, 621–6; (1892) 17: 257–65, 398–403; (1893) 18: 56–63, 77–82, 206–9, 222–5, 319–21, 408–11, 493–9, 553–7) with the comprehensive retrospective accounting of net accumulated payment arrears still outstanding and cumulative bills still outstanding as reported by the legislative assembly in 1769 and 1771 in Bush (1982, 547–64; 1986, 64–8). Following forensic accounting standards, the legislative acts of the assembly are taken as definitive, namely as the final legal word, and so are used here, rather than the treasury reports, to reconstruct the flow of paper money and provide accurate statements of cumulative unpaid arrears along with the payment remedies imposed.5. For examples, see the notes to Appendix Table A3; Carter et al. (Citation2006, 5: 692–6); Grubb (Citation2004); McCallum (1992); Officer (Citation2005); Rousseau and Stroup (Citation2011); Smith (Citation1985a, Citation1985b, Citation1988); Weiss (1970); West (Citation1978); Wicker (Citation1985).6. The amounts of bills in circulation reported in Brock (Citation1992) are systematically larger than the amounts reported in Brock (Citation1975); see Appendix Table A3. Brock (Citation1992) relied on the New Jersey treasury reports, whereas Brock (Citation1975) did not. As explained in footnote 4, the treasury reports do not comprehensively account for the payment of arrears or the removal of bills from circulation. As such, they likely over-imply the amount of bills left in circulation. This may explain both the discrepancy between Brock (Citation1992) and Brock (Citation1975), as well as the greater divergence between Brock (Citation1992) and the results reported in Table 1 compared with those reported in Brock (Citation1975).7. Some scholars have erroneously asserted that New Jersey shifted after 1752 from the par shown in Figure 1 (1.3275£NJ = 1£S) for New Jersey bills of credit to a par equal to that of Pennsylvania bills of credit (i.e., 1.6667£NJ = 1£S) (McCusker Citation1978, 171). This error comes from confusing the current market value of a bill with its par value at redemption, an error often made in the colonial historical literature. This error manifests itself here in the misinterpretation of the "Acts for the Support of Government," which indicated that after 1751 New Jersey provincial government salaries were priced "in Money as it now passes in the Western Division of this Colony." This was pricing only for paying government salaries; it did not change the par value of New Jersey bills of credit. Because bills of credit were zero-coupon bonds with defined future redemption (maturity) dates, at which point their face value would be honored by the government, their current value was not their face value but their present value once time-discounting was taken into account. In 1764, Benjamin Franklin explained that due to time-discounting the current value of a new bill was always about 20% less than its face value (Labaree 1967, 11: 13–5). As such, the present value of a new New Jersey bill would be about 1.6667£NJ = 1£S instead of its face value of 1.3275£NJ = 1£S. See also the implied conversion rates used in the New Jersey treasurers' reports (Documents Relating to the Colonial History of the State of New Jersey (Citation1893) 18: 59, 81). This is exactly the value that McCusker (Citation1978, 171) erroneously assumed was the "new par," though he did note that this rate was just a customary current value as opposed to an official par value. Apparently, after 1751, New Jersey government officials responded to being paid in bills that were worth less than their face value due to time-discounting by requiring in law that their salaries be priced in the approximate current market (present) value of the bills. Their salaries multiplied by 1.25 yielded the approximate amounts of New Jersey bills of credit needed to pay those stated salaries in their current market value, that is, "in Money as it now passes in the Western Division of this Colony." This required action did not change the par value of a New Jersey pound, that is, its face value at redemption (at maturity). See Bush (1980, 234, 269, 327, 393, 472, 581, 640; 1982, 5, 107, 191, 273, 309, 385, 427, 453, 505) and compare that with the par value printed on the face of the bills in Newman (2008, 249–58) and as explained in Figure 1.8. For examples, see Documents Relating to the Colonial History of the State of New Jersey (Citation1894) 11; (1895) 12; (1897) 19; (1898) 20; (1901) 23; (1902) 24; (1903) 25; (1904) 26; (1905) 27; (1917) 29; (1918) 30; (1924) 32; (1928) 33; McCusker (Citation1978, 208). The occasional statements by contemporaries claiming either that New Jersey paper money left the province for circulation elsewhere or that Pennsylvania and New York paper monies were circulating in New Jersey appear to be primarily rhetorical, used by advocates and detractors of new paper money emissions to advance their cause (e.g., see Documents Relating to the Colonial History of the State of New Jersey (Citation1882) 5: 289, 305; Ernst (Citation1973, 292). It is difficult to put much stock in these politically partisan statements. On balance, specie monies (along with any other monies) appear to have been chronically scarce as attested by the preambles to almost every paper money act passed by the New Jersey assembly; see the source note to Table 1; Ernst (Citation1973, 285–6); Lundin (Citation1940, 51–61). On the relative prevalence of specie-scarcity statements by colonists and the theoretical conditions that make such scarcity possible, see Grubb (Citation2012).9. See Bush (1977, 353–63; 1980, 71–4; 1982, 394, 397; 1986, 234–5); Documents Relating to the Colonial History of the State of New Jersey (Citation1894) 11: 119–22; (1903) 25: 440; (1905) 27: 606–7; Scott (Citation1957, 74–6, 87–91, 131–57, 215–8, 238–45). In addition, the number of bills lost is unknown. No estimated adjustments for such a possibility are made here. The ability and mechanism to replace lost bills was unclear in New Jersey, not being legally well articulated.10. The cornerstone of scientific methodology, including that of the social sciences, is the ability to replicate empirical results. Top economic journals, such as the American Economic Review and the Journal of Political Economy, require authors to provide their data and econometric estimating algorithms so that other scholars can replicate the author's results. These journals do not, however, require authors to provide the information needed to replicate their data constructions. This is a significant oversight. Getting the data right should be as important as getting the econometric tests and estimating equations right. Being able to reproduce how data were constructed is important, and the information needed to do such replication should be required of authors.11. After 1704, the colonist were supposed to follow Queen Anne's 1704 Proclamation Rate of 1£NJ = 2.9163 ounces of silver = 0.7533 £S, or 1.3275£NJ = 1£S (McCusker Citation1978, 126, 168; Nettels 1934, 242–9). The colonial New Jersey assembly started using this rate to quote values before they officially changed the par value of their paper money to this rate after 1723.12. Total loan-officer salaries paid per year are determined by identifying the number of loan officers per county, which was not the same across counties, multiplying those numbers by the salaries set for the officers from each county, which was also not the same across counties, and then summing up the values. This information was embedded in each land bank emission act or in subsequent ancillary acts. The interest money used to pay these salaries went back into circulation. It could not serve to redeem or retire bills of credit.13. On July 21, 1768, a sum of 6,750.47 expressed in New Jersey pound units of account was reported stolen from the Eastern Treasury of the province of New Jersey (Documents Relating to the Colonial History of the State of New Jersey (Citation1893) 18: 57–62, 78–82, 208, 320, 381, 387, 494; Ernst 1973, 292). How this stolen sum might have affected the number of New Jersey bills of credit emitted, redeemed, or left in circulation is unclear. No adjustment is made here to the values in Table 1 to account for this stolen sum for the following reasons: What actual monies comprised the stolen sum is unknown. The monies flowing into the Eastern Treasury were reported to be 3,401£NJ in New Jersey paper bills of credit and 37,221£NJ in pounds sterling as expressed in New Jersey pound units of account. In other words, when the thieves broke open the treasurer's strong box, over 91% of the value of the money they faced was in pounds sterling, and less than 9% was in New Jersey paper bills of credit. There were not enough New Jersey bills of credit in the treasurer's possession to account for the 6,750.47£NJ sum stolen. It would seem incredulous to assume that the thieves would ignore the pounds sterling or fail to confine their thievery to pounds sterling only, given the relatively small sum stolen. The large sum of pounds sterling in the Eastern Treasury at this point in time was part of the recently received Parliamentary donations to the colonies. These donations were to compensate the colonies for the monies they spent supporting the last war. The presence of this large sum of pounds sterling may explain the robbery in the first place. As such, the theft likely had no effect on the volume or disposition of New Jersey paper bills of credit emitted, redeemed, or left in circulation. A similar conclusion can be made regarding the return of a sum of 500£NJ to the treasury that was found by the wife of a former treasurer at their home, a sum that apparently no one knew existed (Ernst Citation1973, 292). This sum was part of the extra bills printed that were held in reserve and only used to exchange for worn and ragged bills that could no longer continue in circulation. As such, its disposition (i.e., whether it sat unused at the former treasurer's home or in the treasury) would have no net effect on the emissions or redemptions of New Jersey bills, and therefore no net effect on the amounts left in circulation.