William T. Baxter LONDON SCHOOL OF ECONOMICS AND POLITICAL SCIENCE

OBSERVATIONS ON MONEY, BARTER AND BOOKKEEPING

Abstract: Britain forbade her 18th-century American colonies to set up mints, and sent no supplies of her own coins. In consequence, the colonies were without any official money. Account books of the period reveal how traders fared in this unusual situation. They show that the lack of money was a severe handicap that hindered and distorted trade, but that the colonists to some extent overcame it with the aid of ingenious ledger entries. These culminated in payment by credit transfers in the books of third parties. Such transactions lead to a discussion of the nature of money.

INTRODUCTION

The 18th century account books of Britain’s overseas colo-nies are immensely interesting because they depict societies that had no official money. Britain forbade her colonies to set up their own mints; and British coins brought in by new colonists were soon sent home to pay for imports. A good selection of account books — of city merchants and country store-keepers — has been preserved by university libraries, historical societies, etc., on the east coast of North America, and at British universities.1 This article is based on a survey of such books, whose wide provenance seems to make them reliable evidence.
1William and Mary College (N. Boog’s Ledger), Maryland Historical Society (Ridgeley’s Ledger), New York Historical Society (Wendell’s Ledger), New York Public Library (Harvey’s and Fowle’s Ledgers), Yale Library (Peck’s Ledger and Lyman’s Journal), Rhode Island Historical Society (Jenkins’ Daybook and Brown’s Ledger), the Essex Institute (Stratton’s and Parker’s Ledgers), Harvard Business School (the Henchman Journals and Ledgers, and the Hancock Journals); some West Indian accounts are to be found in British universities — Pinney’s Ledger at Bristol, and the Nevis Ledger at the London School of Economics.
Acknowledgment: I am grateful for help from two referees and the editor.

The accounts show that the lack of official coins was a se-vere handicap, but that the colonists yet managed to carry on lively trade. To help with this, they enlisted some ingenious accounting devices — and indeed (as we shall see) used accounting entries as a semi-substitute for money. This article sets out in some detail the methods that the colonists used to make payments and give barter flexibility.

Despite the lack of official coin, the word ‘cash’ appears not infrequently in the accounts. The article describes the various forms that ‘cash’ may have taken.
The standard histories of North America have accepted that the money shortage was real and acute. But recent works have questioned that view. In a brief digression, this article looks at the rival arguments, and concludes that the account books support the older histories.

Study of this subject must lead on to speculation about the nature of money. How should we define it, and can bartered goods sometimes be deemed money?

HISTORIANS’ DISPUTE OVER MONEY SHORTAGE

Historians long accepted that the colonies were troubled by a shortage of money. Thus they quoted 18th century colonial writers who told of “a universal want of money” [Davis, 1900, p. 60]; “coin did not circulate more than six months before it was gathered up and remitted to England”; at times, the scarcity was “almost incredible. . . . were the country people ever so willing, nay were it to redeem their lives, they cannot now raise money” [Nettels, 1934, pp. 13, 206].
But recently scholars have begun to question this tradi-tional view of shortage, and to suggest that it may be exagger-ated. Their arguments, which tend perhaps to be based more on general reasoning than contemporary evidence, run somewhat as follows. As the world’s money stock could move without undue restrictions, the colonies must have had their share; market forces would equalize prices and exchange rates everywhere; the colonists’ shortages were sporadic (Perkins, 1988, p. 165). The colonies’ 18th century statistics show that the velocity of money was not much lower than in Britain, so the quantity of money must have been adequate [McCusker, 1979 p. 336]. The New Englanders could offset most of their deficit on current account with bullion got from trade with the West Indies, and with earnings from freight and the sale of their ships; any balance was probably covered by Britain’s remittances for the upkeep of her military forces [Walton and Shepherd, 1979, p. 104].

As we shall see, the account books — faithful records of day-to-day transactions — would seem strongly to endorse the older historians’ views. Until at least the end of the 18th century, the accounts tell of innumerable transactions whose nature appears to have been dictated by lack of money.

CASH

The account books have occasional entries for ‘cash’. Unfortunately they tell us little about the nature of the ‘cash’. The word did sometimes mean coins. During the 18th century, these would in all the British colonies be of foreign origin. Thus Australia used rupees, guilders, and Spanish dollars [Parker, 1982, p. 48]. When the wife of a new governor at Cape Town went shopping in 1797 she found herself handling Spanish dollars, star pagodas (small gold coins from India), and Dutch money [Barnard Papers, 1797, Cape Town Library]. The North Americans made much use of silver dollars (minted in the Spanish colonies, and obtained from lucrative trade with the West Indies), as well as French and Portuguese coins [Middleton, 1992, p. 238]; and till about 1720, American ports eagerly welcomed coins from pirates, who plied as far afield as the Red Sea [Davis, 1900, p. 87].

But ‘cash’ could also mean paper money, in whose use the American colonies became daring pioneers soon after 1700. Hard-pressed local governments uttered ‘bills of credit’, to be redeemed when the year’s taxes had been collected. In time the redemption period was stretched, and issues were made ‘promiscuously’ [Davis, 1900, p. 264]. The bills were increasingly used by private persons as means of payment; “cash here is wholly in current bills of the province or a few Lyons dollars” [quoted in Matson, 1998, p. 162].

The account books do not mention banks (which seemingly did not exist in North America till the end of the 18th century). So ‘cash’ could not mean bank deposits.

THE SHILLING

The colonists’ nominal money was a province’s shilling. But, as there were hardly any shilling coins [Nettels, 1934, p. 204], the shilling was a curious semi-abstraction. (Perhaps it can be likened to Britain’s defunct guinea that was still used sometimes as unit of value till about 1970.) Despite its shadowy nature, the colonists used the shilling when valuing goods, etc.; accounts were in consequence kept in £. s. d.

When he received foreign coins, a merchant would value them in terms of shillings (having first weighed the many defec-tive ones on special scales [McCusker and Menard, 1979, p. 338]). The exchange rate varied with market conditions; the dollar’s shilling price soared when provincial bills were issued wholesale [Davis, 1900, p. 258].

THE BOOKKEEPING

The typical colonial trader kept only the bare minimum of accounts needed by a business, that is, records of debts due to and by him. His accounts usually consisted of an untidy ‘waste book’, a journal, and a ledger with the traditional debit and credit layout, and columns for the £, the shilling, and pence. But he was apt to make entries in these books only when credit was given. He then scribbled down the facts in the waste; later he translated them into debits and credits in his journal, analyzing complexities such as joint ventures, payment by a mix of means (‘For Vi money &1 Vi goods’), etc.

But the colonists’ journals give a treacherous picture of the ledger. They duly record a purchase of goods with a debit to ‘merchandise’ and a credit to the supplier; but the ledger may have no entry in a merchandise account. Similarly they record a sale with a debit to the buyer and a credit to merchandise — but again there may be no merchandise entry. They record cash payments in personal accounts but not in a cash account.

By the mid-18th century, many textbooks on accounting were being published in Britain [Bywater, 1982, p. 148] and some of them reached America [Kreiser, 1976, p. 77]. The colonists readily absorbed the chapters on personal accounts, but often decided that the rest did not suit their conditions. Typically they did not keep accounts for assets (save perhaps their many joint ventures), or for income and expenses. They intermingled accounts in local currency with others (for British suppliers) in sterling. They did not balance off their accounts each year. They felt no need for a profit and loss account or balance sheet. In short, they got by with personal accounts and a slipshod system of single entry.

There were no doubt exceptions to the norm just described. Thus a surviving statement from Virginia shows profit being calculated — by comparison of opening and closing net assets (debtors being valued at only half their value because of default risk) [Voke, 1926, p. 10]. Annual reports might be issued where a firm had many owners; the ‘subscribers’ to a Williamsburg store got two balance sheets, one for the accounts kept in sterling, the other for local currency accounts [Coleman, 1974, p. 32].

The colonists’ failure to keep a cash account is perhaps at first sight surprising. But as ‘cash’ was a bewildering medley of foreign coins, tradesmen’s tokens, and bills of different prov-inces and issues, aggregation would have been almost impos-sible; to follow the textbook’s prim instructions, a trader would have needed separate cash accounts for Spanish dollars, Portu-guese moidores, Rhode Island bills, tobacco notes, etc.

A trader’s indifference to income figures supports Yamey’s view that Sombart erred in ascribing the capitalist’s success to help from accounting [Yamey, 1949, p. 36]. Many colonial capitalists achieved notable success with little need for ‘scientific book-keeping’.

Because a merchant’s records show only credit transactions, they give an incomplete view of his trade. Non-credit transactions could have involved more cash than the ledgers suggest. Some evidence is given by the records bequeathed to us by a Connecticut store-keeper who analyzed his sales — as some 10% ‘truck’ (presumably crude barter), 60% credit, and 30% cash; so credit here far outweighs cash [Yale Library, Stanton MSS.].

BARTER WITH CREDIT

Crude barter was still fairly common on the colonies’ fron-tiers [Middleton, 1992, p. 238]. But the account books suggest that city merchants seldom engaged in it. Barter brings high transaction costs — search costs (seeking buyers, advertising etc.), and transfer costs (moving clumsy goods, brokerage, etc.) [Melitz, 1974, p. 57].

Mankind has found two ways to lessen these costs. The first is use of credit. X hands over goods to Y, on the understanding that Y will pay later. This makes barter vastly more feasible.

Credit dealings become easier if they can be proved by records. Medieval merchants noted them on tallies [Roberts, 1956, p. 75]. The colonists made much use of account books, in which they duly recorded credit purchases and sales. And the account books were not only records of amounts owing; they also became a means of payment. With little or no use of coins, the colonist might be able — as we shall see — to settle even complex debt with the aid of his ledger.

Two-way Trade: ‘Bookkeeping barter’ provided an obvious form of credit; X from time to time bought from Y, and Y likewise bought from X (e.g. Henchman of Boston sells Bradley of Connecticut books, needles, Jews harps, etc., and Bradley over four years pays with a trickle of quills, rye, and pork [Henchman, Ledger B, p. 104, Harvard Business School]. Each man kept an account for the other. Lengthy credit, based on face-to-face trust, was usual; in a small community, a trader would have a shrewd idea of his neighbors’ reliability and circumstances.

Nowadays most personal accounts are for either suppliers or customers; an account shows goods, etc., on one side and money on the other. In the colonists’ accounts, both sides may show goods, with cash featuring rarely.

The accounts achieved the status of evidence when there were legal disputes. In this respect, the colonies digressed from English common law, which held that ‘shopbooks’ could not be admitted as evidence. Such strict rules were brushed aside by local colonial courts, where even the judge might have no legal training; a party’s ledger was admitted as evidence when accom-panied by his oath [Wootton, 2000, p. 26].

Triangular Payment: But debtor Y might not stock anything that creditor X wanted. Then (the ledgers show) the pair could turn to triangular dealings. Y gives X a note addressed to shopkeeper Z, asking the latter to let X have goods worth £-; so X is satisfied, and Y pays with a debit to his account in Z’s ledger (see for instance Hancock note, British Museum addl. 38 808). There might be a somewhat different scenario: Y is owed a balance by Z, who cannot settle (perhaps because of remoteness), so Y sends X to collect payment. Thus a Boston merchant credits Noble (of New York) with: “By so much ordered by Mr. Hazzard to balance £44.11.9”, and debits Hazzard (also of New York) with “To so much ordered to balance Mr. Nobles account – £44. 11. 9” [Henchman Ledger B, p. 152].

Triangular deals might be arranged verbally, or with the aid of a note not unlike the modern cheque in shape. Large num-bers of these notes have survived [see, for example, Hancock MSS, Harvard Business School]. Perhaps they were almost as commonplace as today’s cheques. They obviously played a sig-nificant role in business, and should be prominent in our stud-ies. The colonists used also bills of exchange, but mainly to pay their overseas suppliers [Middleton, 1992, p. 238].

Triangular transactions were common in late medieval Eu-rope [de Roover, 1944, p. 382]. Records of such credit transfers

(kept by either of the parties) would in time evolve into two accounting entries. This must surely help to explain how double entry originated and came into common use. The transactions thus seem of immense importance in the history of accounting.

Transferable Notes: A triangle could assume a more complex shape when the note was made transferable — “please pay X or order £- in pork” [Hancock MSS, 20 3]. Such notes might pass through several hands, their worth depending on the drawer’s reputation [Kreiser, 1976, p. 77], and must have acted as an extra supply of money. Colonial courts decided (again in conflict with English common law) that debt held by one person could be assigned to another [Wootton, 2000, p. 26].

INTERMEDIATES

The second way in which mankind has moved on from crude barter is by use of intermediates. A trader with type A goods wants to exchange them for type B, whose owner will not accept them; but a third trader will take them if allowed to pay in type C goods; if these goods are popular and widely acceptable, the original trader can sell his A for them, and then use them (sooner or later) as payment for his desired purchases. C is thus a most helpful intermediate, accepted not for its own sake but because other persons take it readily. Its use greatly reduces transaction costs. The American colonies used goods as intermediates. So these performed some functions of money, and may properly be called commodity money.

COMMODITY MONEY

The colonial account books show that all types of traders made much use of commodity money. There are innumerable examples of debts being paid with goods such as tobacco, mo-lasses, and flax; pork and beef were particular favorites. These commodities were traded widely in the market; provinces and towns might take them as tax payment at published rates, and they were sometimes legal tender [Nettels, 1934, p. 209].

But commodity money must have been an inconvenient form of intermediary. It was often bulky and heavy, and so costs of transport and storage might eat away its value. Some types (notably beef) were apt to deteriorate [Middleton, 1992, p. 238]. The goods’ quality and shilling value had to be agreed by the two parties (disputes being settled by arbitrators such as churchwardens [Nettels, 1934, p. 211]. If there was a glut of (say) wheat, its value dropped, and creditors suffered; if there was a bad harvest, its value rose, and debtors suffered [Nettels, 1934, p. 211]. And debtors were prone to palm off their worst products, so that (as Gresham warns) circulating money might be of poor quality [Nussbaum, 1957, p. 4].

Perhaps a city merchant could hardly distinguish between commodity money (which he planned to pass on with perhaps little or no gain or loss) and his main stock-in-trade. When for instance his country customers settled their accounts by sending him wheat, presumably this was commodity money if he intended it for creditors, but stock-in-trade if he loaded it on his ships in hope of profitable sale in the ‘sugar islands’. As with cash, the colonists seldom recorded commodity money in asset accounts. A trader’s textbooks told him to debit receipts of each type of goods to a separate account [Mair, 1793, p. 134]; but he sensibly decided it was pointless to keep records of transient holdings of beef, pelts, etc.

BOOK TRANSFERS

An important type of intermediary is illustrated in the led-ger of a Trinidad planter:
D. Morgan
To so much discounted with
J. A. Jacob £x
J. A. Jacob By your assumpsit to D. Morgan . . . £x

[Trinidad Ledger, London School of Economics]. ‘To discount’ was to deduct or offset. An ‘assumpsit’ was ‘a taking upon oneself’.
Here the story probably is that Morgan was pressed for payment by Jacob, but lacked cash. The ledger owner Z had dealings with both men. Morgan asked him to intervene with a transfer from his Jacob account to his Morgan account. If the transfer were arranged with a written note, it would run somewhat as:

Z. Please pay to your humble servant or discount with J. A. Jacob £-.
D. Morgan

Thus the ledger keeper acted like the modern banker who is presented with a cheque. Debt was settled by book entries, with no other assets changing hands.

Such book transfers appear fairly often in the ledgers. A Colonial town may apparently be viewed as a place without banks, but where merchants — perhaps for no reason save to maintain friendly relations — acted like bankers by switching credit in their accounts. Book credit thus acted as an intermediary. It was an obvious precursor of today’s great intermediary, money, in such forms as bank credit.

MINOR PAYMENTS

We can only speculate on how debt was remembered by people outside the ledger-keeping class. Perhaps shopkeepers kept a slate for each debtor, and promissory notes were com-mon. Wages could be paid with ‘shop notes’: employer Y would give laborer X an order for goods from shopkeeper Z. (If Y and Z were unscrupulous, an embittered laborer X would be charged perhaps 25% above normal prices, Z paying Y a commission [Davis, 1900, p. 378].

Small foreign coins such as the ‘bit’ — an eighth of a dollar (the ‘piece of eight’) — were sometimes available [Nettels, 1934, p. 170]; these could no doubt serve as payment for petty expenses. And governments increasingly helped by issuing parchment bills with denominations as low as a penny [Davis, 1900, p. 148].

MONEY

Intermediate commodities must surely be included in most definitions of money. No doubt payment is more acceptable in the form of official currency; but an intermediate still performs some of money’s functions even when it takes less convenient forms.

Money has been defined by economists as e.g. a claim [Boulding, 1941, p. 258] or promise [Hicks 1946, p. 168], it is generally acceptable, and — Jevons told us — functions as me-dium of exchange, measure of value, store of value, and stan-dard for deferred payments. Melitz persuasively adds means of payment [1974, p. 8]. Commodity money certainly acted as means of payment, however clumsily.

The non-existent shilling was a curious form of intermedi-ary. The lack of a coin must have greatly lessened its usefulness. But presumably it served not only as value unit but also as an indication of payment quantity; a promise to pay twenty shillings was really a promise to pay dollars, notes, or merchandise worth twenty shillings at current rates.

CONCLUSION

The old ledgers bear ample witness to the scarcity of money (and thus support the older school of historians). They show how they themselves enabled the colonists to overmaster the scarcity: bookkeeping let trade thrive. The ledgers emphasize the two ways in which barter has been modified — first by the addition of credit, and second by use of intermediaries (in particular, book credit in third parties’ accounts, which was thus a precursor of today’s bank credit).
Further research might find interesting additional ways in which the colonists used bookkeeping to counter the shortage of coins.

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