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

Abstract

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.