How Does the Colony of Massachusetts Make Money?

Learn about how Massachusetts' economy has changed over time from an agricultural base to its current focus on technological research & development & service sector.

How Does the Colony of Massachusetts Make Money?

Massachusetts' early colonial economy was mainly based on agriculture. The steady flow of English immigrants allowed the state's first farmers to make a profit for about a decade growing corn and raising cattle. In the present day, Massachusetts' economy is largely based on technological research and development and the service sector (including tourism). This represents a major change from the state's pre-industrial agricultural base and maritime trade in the 17th and 18th centuries, as well as the heavy manufacturing that characterized the 19th and first half of the 20th centuries.

In colonial times, the units of account were pounds, shillings and pence (1£%3D 20s). This is comparable to treating Canadian dollars and modern US dollars as interchangeable, simply because both are referred to as “dollars”. All local currencies were less valuable than the British pound, with a Spanish piece of eight being worth 4 s. On the eve of the Revolution, this same piece of eight would have been treated as 6 s.

In New England, it was worth 8 s; in New York, 7 s; and in Philadelphia, 32 s. Historian Grubb has used contract records in early Republic (2003, 200) and runaway announcements in colonial Pennsylvania (200) to develop time series of hitherto immeasurable components of the money supply. This has led to many surprising conclusions. The Pennacooks occupied the Merrimack River Valley to the north, while the Nipmucs, Pocumtucs and Mahicans occupied western Massachusetts - although some of these tribes were under tribute to the Mohawks from upstate New York.

Charles II sought to extend real influence over the colonies, which Massachusetts resisted along with other colonies. Due to retirements Phillips lost, he overestimated the number of Pennsylvania bills of credit outstanding at the end of the colonial period by 50 to 100%. He concluded that “there was no concerted effort by the king and his ministers to crush the Massachusetts mint”. In fact, many private banking schemes were based on private hand notes - such as the Merchants Bank of Massachusetts, Merchants Bank of New Hampshire, New London Society and Land Bank of 1740 - each consisting of a partnership designed to circulate such banknotes on a large scale. One of the first and largest shoe plants in America was built in Beverly in 1903-0 - known as United Shoe Machinery Corporation - while construction of Springfield armory in 1777 boosted industry in western Massachusetts while helping revolutionary cause. People's creditworthiness was more difficult to determine in colonial times than it is today, due to asymmetric information problems.

King William III issued a letter in 1691 despite efforts by Massachusetts agents to revive old colonial charter. The colonists' main transgressions were minting money (the pine shilling) and violations of navigation laws passed by Parliament to regulate trade within English colonial empire. In colonial era, unit of account and medium of exchange were different in ways that now seem strange. The Massachusetts government was unable to fulfill promises made when first new tenor issue was created, so decided in 1742 to revalue these notes from three to one to four to one with previous maturity as compensation. However, some twentieth-century economists have gone too far by generalizing on basis of success of system in middle colonies and attributing benign results there to fundamental soundness of system and its shrewd management. All estimates of number of colonial bills of credit in circulation lead to conclusion that in 1774 there were very few outstanding bills of credit - not close to 22 million dollars implied by Hamilton.