The Many Monies of King Cotton: Domestic and Foreign Currencies in New Orleans, 1856-1860

Manuel A. Bautista-Gonzalez


Economists like Robert Mundell have argued in favor of payment systems with only one currency in circulation: their main argument is that exchange rates between several currencies generate efficiency costs in the form of lost output and transaction costs such as exchange commissions and financial uncertainty, resulting in economic backwardness.1 Following this theoretical insight, economic literature has consistently vilified historical episodes where plurality of currencies was the rule. However, until the advent of the international gold standard during the last quarter of the nineteenth century, most payment systems in the world functioned with several currencies circulating in daily transactions.

1 Mundell Robert, “A Theory of Optimum Currency Areas.” TheAmerican Economic Review 51,4 (1961) :657-665.

M.A. Bautista-Gonzalez (h)

Columbia University in the City of New York, New York, NY, USA e-mail: This email address is being protected from spam bots, you need Javascript enabled to view it

© The Author(s) 2016

B. Batiz-Lazo, L. Efthymiou (eds.), The Book of Payments, DOI 10.1057/978-1-137-60231-2_5

The existence of a territorially homogeneous mono-money reuniting the functions of means of payment, storage of value, and unit of account was a novelty of the nineteenth century that came coupled with the development of the modern nation state.[1]

The historical record attests that monetary plurality had clear benefits, especially in economies with concurrent and multiple money demands and inelastic money supplies. Advantages resulted mainly from two reasons. The first reason is socioeconomic: different currency circuits (the coupling of a currency with a trade and the actors involved in it) might have had differentiated money demands that could not be sufficed by a single, homogeneous, unified money supply.[2] The second reason is of a financial nature: economists ranging from Milton Friedman to Paul Krugman have argued that during financial crises, flexible exchange rates between many currencies are better at providing much-needed liquidity for transactions compared to payment systems with a single currency.[3]

On the eve of the Civil War, paper monies comprised the lion’s share of the money supply in circulation in the United States. After the demise of the second national Bank of the United States in 1836 and during the era of free banking (1837-63), notes from state-chartered and “free” banks prevailed as means of payment in daily transactions. These banknotes circulated as liabilities on the banks’ assets, and were backed by gold and silver reserves, or federal and state bonds. Foreign metallic currencies were not only used in the course of international trade but doubled also as reserve monies stored in the banks’ vaults, providing a bimetallic anchor to the American payment system. The port of New Orleans is an ideal location to illustrate the American experience with plurality of currencies. New Orleans was a port with many trade and capital flows from elsewhere in the United States, Europe, and Latin America, and as a result, different currencies from the country and abroad circulated in it, lubricating exchanges.

  • [1] Helleiner Eric, The Making of National Money. Territorial Currencies in Historical Perspective.(Ithaca, NY: Cornell University Press, 2003).
  • [2] Kuroda Akinobu, “Review of Thomas J. Sargent and Francois R. Velde, The Big Problem of SmallChange.” International Journal of Asian Studies 2, 1 (2004):179-81.
  • [3] Friedman Milton, “The Case for Flexible Exchange Rates” in Essays in Positive Economics. edMilton Friedman, (Chicago, IL: The University of Chicago Press, 1953), 157-203.
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