We examine the monetary experience of New Orleans when it was occupied during and immediately following the Civil War, using newly assembled data regarding the quantity and market value of the city’s municipal notes and the city’s fiscal position. Municipal notes, acceptable for taxes, circulated at face value in retail transactions (and at only a small discount in broker transactions) as long as their supply was sufficiently limited, and they fell out of circulation and were priced at a discount relative to interest-bearing municipal bonds, when concern arose about their overissue. The spontaneous rejection of New Orleans municipal notes exemplifies how choice in currency works when insufficiently backed money is not supported by legal tender laws.
The Review of Austrian Economics – Springer Journals
Published: Jul 8, 2009
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