U.S. Current Accounts and Bullion
Flows, 1821-1900
March 4, 2012
A while ago, we looked at the history of current account balances
and bullion flows for the United States during the 19th century.
September
18, 2011: U.S. Balance of Payments During the 19th Century
There's a silly notion that a gold standard system causes "balanced
trade." Why this should be, I don't know. Don't you think that the
U.S. maaaaaybe had some "unbalanced trade" in the 182 years of gold
standard usage (with lapses) from 1789-1971? How about Britain,
during its 233 years of gold standard usage?
I put the available data in some graphs to look at. Remember, any
trade statistics and GDP statistics from the 19th century are going
to be pretty hypothetical. So, don't take them too seriously. But,
they are the best we have and they give us some idea of what was
going on in those days.
Also, remember that the U.S. was actually off the gold
standard system from 1861-1879, so there's a big floating-currency
period in there too.
Here's what it looks like. This is in millions of dollars. The blue
is bullion flows. A positive denotes an export. The red is the
current account balance ex-bullion flows. The green is the current
account balance including bullion flows.
First, we see that there certainly wasn't "balanced trade," because
the red and green bars are all over the place, instead of flatlining
near zero.
However, there is some negative correlation between the blue bars
(bullion flows) and the red bars (CA ex-bullion flows). This, I
think, is mostly a coincidence.
The blue bars start to become strongly positive in 1850. Why? Gold
was discovered in California in 1849. There was more coming out of
the ground than people needed, so they exported it.
Beginning in 1860, we again see big exports of gold, and big imports
of everything else. This was, of course, the Civil War. During such
a war, a) domestic gold holders decide that maybe they should ship
their gold overseas to Europe, and invest in British Consols or
something safe like that (the reverse flow happened during World War
II); b) foreign investors have no interest in sending any gold to
the war-torn U.S.; c) there are a lot of things to pay for in
wartime, so people with gold sell it to buy something they need.
When we return to the gold standard in 1879, and the period to 1900,
there's a lot less correlation.
Here's the same graph, represented as percentages of estimated GDP.
We see that current account deficits were commonly on the order of
2% of GDP, and sometimes hit 3%. The U.S. was a growing economy in
those days, and they needed lots of capital. Europeans were eager to
invest in the exciting New World.
