¹ See, for example, Mathews, R. C. O., A Study in Trade-Cycle History: Economic Fluctuations in Great Britain 1833–1842 (Cambridge, England: Cambridge University Press, 1954), p. 46.Google Scholar

² Hammond, Bray, “Jackson, Biddle and the Bank of the United States,” The Journal of Economic History, VII (May 1947), 8.Google Scholar

³ Mathews, Study in Trade-Cycle History, p. 54.

⁴ Ibid., p. 69.

⁵ Cole, A. H. and Smith, W. B., Fluctuations in American Business 1790–1861 (Cambridge: Harvard University Press, 1935), p. 73. Also cited in Mathews, Study in Trade-Cycle History, p. 69. The article by Clark Warburton which appeared in this Journal in September 1958 and which emphasizes the importance of external factors came too late to hand to be included inGoogle Scholar the present paper.

⁶ Ibid., p. 68.

⁷ Ibid., p. 68.

⁸ External balance is taken to mean the absence of balance of payments difficulties; internal balance is synonymous with the maintenance of full employment without a continuing inflation of money prices and costs. Cf. Meade, J. E., The Balance of Payments. (Oxford University Press), 1951, p. 106–107 and Chs. xiii-iv.Google Scholar

⁹ I have selected price series given in A. H. Cole and W. B. Smith, Fluctuations in American Business I7go-i86i, as representative of Eastern prices, the price series of T. S. Berry, “Wholesale Commodity Prices at Cincinnati and in the Ohio River Valley 1818–60,” in Cole, A. H., Wholesale Commodity Prices in the United States iyoo-1861 (Cambridge, Mass.: Harvard University Press, 1938)CrossRefGoogle Scholar, as representative of western prices, G. R. Taylor, “Wholesale Commodity Prices at New Orleans 1800–61,” Ibid., as representative of Southern prices, and the price series of Siberling, N. J., “British Prices and Business Cycles, 1779–1850,” Review of Economic Statistics, Vol. V (1923)Google Scholar, as representative of external or foreign prices. These series are available monthly and quarterly in convenient and accessible form in their respective sources, and it has therefore not been considered necessary to reproduce them here. I have taken the annual averages of the various series with 1834–42 as a base. The choice of annual averages is dictated by the availability of data on the total money supply.

In representing eastern prices, I have limited myself to Eastern Prices as given, by Cole and Smith. The justification for this is the substantial correlation between price movements in the various eastern cities which permits the use of a single index depicting Eastern prices. I haveselected New Orleans prices as representative of price movements in Southern sections of the United States. The choice, dictated by the availability of data, can be justified by the economic importance of the Mississippi Valley during the period 1834–45. It seemed desirable to obtain a price series for at least one interior community and here the availability of data dictated Cincinnati and the Ohio River Valley. Finally, since this paper advances the hypothesis that internal monetary difficulties in the United States had their origin largely in external events, information on the movement of external prices is necessary and here the importance of Britain in the trading world as well as availability of data dictates this country.

¹⁰ Spearman rank correlation coefficient for the first differences of the money stock and prices, and rank correlation coefficient of first differences of internal prices and external prices:

¹¹ Cf., Cole and Smith, Fluctuation in American Business 1790–1861, p. 67, for a discussion on differences in the statistical construction of eastern and external prices indexes.

¹² Cf. Jenks, L. H., The Migration of British Capital to 1875 (New York: A. A. Knopf, 1927), Ch. II-IV.Google Scholar

¹³ Jacob, Viner, Canada's Balance of International Indebtedness, 1900–1913 (Cambridge, Mass., 1924) Chapters 7 and 9.Google Scholar

¹⁴ Ibid., p. 358.

¹⁵ Ibid., p. 358.

¹⁶ H. R. 296, 27th Congress, 3rd Sess., March 2, 1893, pp. 3, 7.

¹⁷ Jenks, The Migration of British Capital to 1875, p. 363 and Bullock, C. J., Williams, J. H., and Tucker, R. S., “Balance of Trade of the United States,” Review of Economic Statistics, preliminary Vol. I (1919), pp. 215–66.CrossRefGoogle Scholar

¹⁸ Cf., Jenks, The Migration of British Capital to 1875, Chapters III-IV; Alexander Trotter, Finances of the North American States (London: Longman, 1839), H. R. 296, 27th Congress.Google Scholar

¹⁹ Smith, W. B., Economic Aspects of the Second Bank of the United States (Cambridge: Harvard University Press, 1953) p. 89.Google Scholar

²⁰ Jenks, The Migration of British Capital to 1875, Chapters III-IV.

²¹ The legal rate of the pound sterling was $4.44 4/9 as fixed by the revenue act of July 31, 1789, under which imported wares from British sources were appraised. This rating was in accord with the valuation of the silver dollar that had been adopted by the Continental Congress by the ordinance of 1786. However, the value of the pound sterling was about $4.566 in gold owing to the demonetization and lower rating of silver in England. Thus the quotations esti of exchange at par prior to August I, 1834, were in figure 102.7. No legal change was made after the alteration of the weight of gold coin in 1834–37, yet by that alteration the 113.001 grains of pure gold in the pound sterling, estimated in dollars of 23.22 grains pure gold, gave $4.86⅔. The difference between the last mentioned equivalent and the one of 1789 amounts to approximately 91½ per cent, hence the part of exchange was expressed with a minimal premium figure, thus 109½, notwithstanding an act of 1842 which rated sterling at $4.84, in payments by and to the treasury. Cf. Hunt's Merchant Magazine, I (1839) 536.

²² The cost of shipping specie varied with freight rates, interest rates, and other factors. Over the period of this study, contemporaries estimated that the “export point” was approximately “two per cent above real par” or “about ten per cent nominal advance.” Reports of the Secretary of the Treasury, III (1834) 597.

²³ See Appendix to this paper.

²⁴ Reports of the Secretary of the Treasury, IV (1837) 199, 253, 364.Google Scholar

²⁵ Ibid., pp. 199, 253, 364.

²⁶ See Arithmetic of Money Supply in Appendix in this paper.

²⁷ I am indebted to Milton Friedman and Phillip Cagan for this point.

²⁸ See Appendix.

²⁹ ” Another factor helping to explain the relatively small specie flow is the “income effect.” Thus the inflow of funds causes money income and expenditure to rise in the United States and, as income rises, imports rise still further and exports fall. In essence, the “income effect” speeds up the adjustment process and relatively small specie flows are required to accomplish the real transfer. Cf. Metzler, L. A., “The Theory of International Trade,” in Ellis, H. S., ed., Survey of Contemporary Economics (Philadelphia, 1948), Vol. I, pp. 211–22.Google Scholar

³⁰ The initial increase in internal prices followed by a subsequent decline in order to achieve resumption is concealed by annual averages in Figure I. See Figure 3.

³¹ Cole and Smith write “Almost without exception, the rise and fall of British prices anticipate corresponding movements of American … a year before the definite turn came in the American cycle, March 1837, British prices were beginning to move rather rapidly downward… .” Cole and Smith, Fluctuations in American Business 1790–1861, p. 67.

³² On July II, 1836, the Treasury Department issued what is termed the “Specie Circular.” This circular was an order instructing agents for the sale of public lands to take in payment only specie (and no longer receive the notes issued by banks). In certain cases, however, Virginia scrip was acceptable. And, indulgence was granted the small-land purchaser (320 acres) until December 15, 1836. Reports of the Secretary of the Treasury, III (1837) 764Google Scholar. Almost simultaneously Congress authorized that the surplus in the Treasury above five million dollars be distributed among the states in proportion to their population. The distribution was to be made in quarterly installments beginning January I, 1837. This was the Deposit Act of “distribution of the surplus revenue.” At the time of passage of this Bill the surplus in the Treasury amounted to approximately forty-one million dollars.

³³ The first three transfers came from the Eastern Seaboard States and the fourth transfer was cancelled. The deposits in the Southern and Western States that had failed were noc available. Reports of the Secretary of the Treasury, III-IV and Bourne, E. G., History of the Surplus Revenue of 1837 (New York: G. P. Putnam's Sons, 1885), Appendix.Google Scholar

³⁴ Examination of Figure 2 shows that in the first three months of 1837 exchange rates stood' at the specie export point—”two per cent above real par” or “about ten per cent nominal advance” (Reports of the Secretary of the Treasury, III [1834] 597)—and in April at the time of the second transfer of the surplus to the states, they were above it. The United States lost over $2 million in specie to Britain in the spring of 1837. (Reports of the Secretary of the Treasury, IV [1838].) As suggested by some authors, the loss of specie at this time may be partly attributed to the “adjustment” undertaken by the specie losing country, Britain, in response to the heavy specie outflow which accompanied the capital outflow to the United States in the earlier years. It seems not unreasonable, however, to attribute a part of the specie outflow to a growing distrust on the part of foreign investors in the ability of the United States to maintain the specie standard.

³⁵ A memorial from the merchants of New York to President Van Buren in May 1837, requesting the repeal of the Specie Circular, states that within the previous six months New York suffered “250 failures of houses engaged in extensive trade” and “within a few weeks, not less than 20,000 individuals have been discharged by their employers because the means for retaining them were exhausted… .” Reports of the Secretary of the Treasury, Vol. IV (1837), PP. 38–40. New York then had a population of about 310,000. If we assume that at least one-third of this total constituted the labor force and that the merchant's estimate of jobless is correct, unemployment in New York City in this period amounted to over 20 per cent of the labor force.Google Scholar

³⁶ Contemporaries denounced the shipment of one million pounds (L) of specie from England to the United States in early 1838 as “mere quackery.” Jenks, Migrations of British Capital to 1875, p. 92.

³⁷ Reports of the Secretary of the Treasury, Vol. IV (1838).Google Scholar

³⁸ Martin, J. G., Seventy-three Years’ History of the Boston Stock. Market, from January 1, 1798, to January 1, 1871 (Boston: published by the author, 1871), p. 29.Google Scholar

³⁹ “These (copper coins) bore all kinds of devices and caricatures, mostly levelled at General Jackson's policy. In the midst of a brisk and lucrative business, orders came from the attorney general at Washington to prosecute all makers, vendors, and circulators of spurious coin… . Thus ended the fun and profit.” Ibid., p. 31.

⁴⁰ Reports of the Secretary of the Treasury, Vol. IV (1838), and Comptroller of the Currency for 1876.Google Scholar

⁴¹ Anna J. Schwartz, “Pennsylvania Banking Statistics” and “New York Banking Statistics,” National Bureau of Economic Research (Unpublished manuscripts).

⁴² Martin, Seventy-three Years’ History of the Boston Stock Market.

⁴³ Hepburn, A. B., A History of Currency in the United States (New York: Macmillan Company, 1915),P. 164.Google Scholar

⁴⁴ H. M. Larson, “E. W. Clark and Company, 1837–57: The Beginning of an American Private Bank,” Journal of Economic and Business History, IV (December 1931), p. 428.Google Scholar

⁴⁵ I am indebted to E. J. Hamilton for this observation.

⁴⁶ Cf. Bicknell's Counterfeit Detectors, Vol. III, No. 1, April 1, 1835.Google Scholar

⁴⁷ Hepburn, A History of Currency in the United States, p. 164.

⁴⁸ I am indebted to Phillip Cagan and Milton Friedman for the following formulation.