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Dollar-Sterling Mint Parity and Exchange Rates, 1791–1834

Published online by Cambridge University Press:  03 March 2009

Lawrence H. Officer
Lawrence H. Officer
Affiliation:
Professor of Economics at Michigan State University, East Lansing, Michigan 48824.
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Abstract

Two series of the dollar-sterling exchange rate are presented for the 1791–1834 period, both series based on actual transactions and corrected for the component of interest in bills of exchange and for episodes of floating exchange rates. Expressed as deviations from a true parity measure and conjoined with existing data for 1835–1900, the series permit an examination of the stability of the gold points over the entire nineteenth century. The steady narrowing of metallic points, previously found for 1835–1900 and confirmed here, does not apply to the earlier period; but evidence suggests that movement to an integrated market in foreign exchange developed in the 1820s.

Type
Articles
Information
The Journal of Economic History , Volume 43 , Issue 3 , September 1983 , pp. 579 - 616
Copyright
Copyright © The Economic History Association 1983

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References

1 The word “virtual” is used in two senses: first, bimetallism rather than monometallism was the legal situation in Britain until 1816 and in the United States from 1786 onward; and second, the metallic standard was interrupted by a paper standard in each of the countries.Google Scholar

2 The only existing pre-1835 exchange-rate series that exhibits any of these features is the Davis-Hughes series, which has the first property only. See below.Google Scholar

3 Perkins, Edwin J., “Foreign Interest Rates in American Financial Markets: A Revised Series of Dollar-Sterling Exchange Rates: 1835–1900,” this Journal, 38 (06 1978), 392–417;Google ScholarDavis, L. E. and Hughes, J. R. T., “A Dollar-Sterling Exchange, 1803–1895,” Economic History Review, 2nd ser., vol. 13, no. 1 (1960), 52–78. Like the new series for 1791–1834, the Perkins data exhibit all four properties, but with two exceptions. Perkins, as did Davis and Hughes before him, corrects depreciation of paper currencies against specie only for the greenback period and not for other episodes of suspension of specie payments. Also, again following Davis and Hughes, Perkins's measure of exchange-rate panty is incorrect for 1834–1837. See below.Google Scholar

4 The 1785–1786 legislationGoogle Scholar and the proposals underlying it are reproduced in International Monetary Conference, Senate Executive Document No. 58, 45th Cong., 3rd sess. (Washington, D.C., 1879), pp. 437–53.Google Scholar Good discussions of this episode are provided by Taxay, Don, The U.S. Mint and Coinage (New York, 1966), pp. 20–25;Google ScholarCarothers, Neil, Fractional Money (New York, 1930), pp. 50–56;Google Scholar and Watson, David K., History of American Coinage [henceforth, Coinage] (New York, 1899), pp. 13–25.Google Scholar

5 See Stewart, Frank H., History of the First United States Mint [henceforth, Mint] (privately printed, 1924), p. 19.Google Scholar

6 On this differential treatment of gold and silver coins, see “Report of Alexander Hamilton on the Establishment of a Mint,” in International Monetary Confrrence, p. 456.Google Scholar

7 These comments are not to be interpreted as strictures against the colonial monetary system. Indeed, as Sylla writes: “One would be hard pressed to find a place and time in which there was more monetary innovation than in the British North American colonies in the century and a half before the American Revolution.” See Sylla, Richard, “Monetary Innovation in America,” this JOURNAL, 42 (03 1982), 23.Google Scholar To the accomplishments mentioned by Sylla one might add, for the Revolutionary Period, the joint Congressional-state refunding plan of 1780 for the redemption of Continental bills. This was historically the first contractionary monetary reform of a paper currency. For the basic literature on the colonial monetary system, see the bibliographical essay prepared by Perkins, Edwin J., The Economy of Colonial America (New York, 1980), pp. 121–22.Google Scholar The paper-money experience of the Revolutionary Period is described by Carothers, , Fractional Money, pp 37–41;Google ScholarDewey, Davis Rich, Financial History of the United States (London, 1934), pp. 34–41;Google ScholarNussbaum, Arthur, A History of the Dollar [henceforth, Dollar] (New York, 1957), pp. 35–39;Google ScholarStudenski, Paul and Krooss, Herman E., Financial History of the United States (New York, 1963), pp. 25–29;Google ScholarNettles, Curtis P., The Emergence of a National Economy (New York, 1962), pp. 24–31;Google ScholarHepburn, A. Barton, A History of Currency in the United States [henceforth, Currency in the United States] (New York, 1924), pp. 13–19;Google ScholarSumner, William G., A History of American Currency [henceforth, American Currency] (New York, 1874), pp. 43–49;Google Scholar and Mar, Alexander Del, History of Money in America [henceforth, Money in America] (New York, 1899), pp. 93–116. As Sylla points out, it was the reaction to the inflationary paper money experience of the Revolution (rather than the mixed history of colonial paper money) that led to a specie standard for the federal United States. The Continental bills (“old tenor”) depreciated to one-thousandth of face value, becoming worthless by 1780. Sumner writes: “A barber's shop in Philadelphia was papered with it, and a dog, coated with tar, and the bills stuck all over him, was paraded in the streets”Google Scholar (American Currency, pp. 46–47). Even the reform currency (“new tenor”) depreciated to one-sixth of its silver value.Google Scholar

8 For the early history of banking in the United States, see Hammond, Bray, Banks and Politics in America (Princeton, 1957), pp. 40–88.Google Scholar

9 Hamilton's, report is printed in International Monetary Conference, pp. 454–84; and is discussed by Carothers, Fractional Money, pp. 57–61; and Taxay, U.S. Mint, pp. 44–51.Google Scholar

10 U.S., Statutes at Large, vol. 1, 2nd Cong., 1st sess., chap. 16, pp. 246–51. Good summaries of the Act are provided by Taxay, U.S. Mint, pp. 65–67, and Carothers, Fractional Money, pp. 62–65.Google Scholar

11 The gold and silver coins below full weight, however, were to be legal tender at values proportional to their respective weights. For the rationale of the unusual fineness of silver, see Carothers, , Fractional Money, pp. 62–63;Google ScholarKemmerer, Edwin Walter, Gold and the Gold Standard (New York, 1944), p. 66, fn. 3;Google Scholar and Willem, John M. Jr, “The Case of John vaughn and the Rittenhouse Dollar,” Numismatic Scrapbook Magazine, 23 (03 1957), 436.Google Scholar

12 It took until about 1800 for the private sector to follow the government and courts in moving to a decimal accounting system from their states' former pound-shilling-pence units of account. See Stewart, , Mint, pp. 18–19.Google Scholar

13 The date traditionally ascribed to this emission is October 1792 (see, for example, Watson, , Coinage, p. 64, and Hepburn, Currency in the United States, p. 45); but Taxay (U.S. Mint, pp. 71–72) provides evidence that it was no later than July.Google Scholar

14 Until 1975 the Mint was attached to the Dept. of State rather than to the Treasury. The letter, dated 12 30, 1793, is printed in American State Papers, Finance, vol. I, pp. 270–71. Concerning the reduction in the bondGoogle Scholar, see Statutes at Large, vol. I, 3rd Cong., 1st sess., chap. 4, p. 341.Google Scholar For a description of this episode, see Taxay, , U.S. Mint, pp. 65, 120–21.Google Scholar

15 The first gold deposit occurred on February 12, 1795 and its coinage on July 31. Fora list and description of the early deposits at the Mint, see Stewart, , Mint, p. 44–50.Google Scholar

16 The mint officials involved in the overfineness of the silver dollar were not punished—not even reprimanded—for their behavior. Depositors, of course, received less legal-tender money for their silver bullion than the law specified. One such depositor received reimbursement from Congress. Good discussions of the overfine silver-dollar episode are presented by Willem, , “Case of John Vaughn,” pp. 433–39; and Taxay U.S. Mint, pp. 89–90, although they incorrectly state that the 1794–1795 dollar consisted of 374.75 grains of fine silver (rather than the true 374.4). The source documents—printed in American State Papers, Finance, vol. 1, pp. 352–58, 588; Annals of Congress, 5th Cong., pp. 3667–71;Google Scholar and “Gold and Silver Coins,” Report No. 496, in Reports of Committees of the House of Representatives, vol. 5 (Washington, D.C., 1831), pp. 17–20—clearly show 374.4 to be the correct number.Google Scholar Among commentators, only Hepburn, (Currency in the United States, p. 44, fn. 1) explicitly states the correct figure.Google Scholar

17 Statutes at Large, vol. 4, 23rd Cong., 1st sess., chap. 95, pp. 699–700.Google Scholar

18 Statutes at Large, vol. 5, 24th Cong., 2nd sess., chap. 3, pp. 136–42.Google Scholar

19 For discussions of the 1834 and 1837 Acts, see Taxay, , U.S. Mint, p. 200; Watson, Coinage, pp. 85–87, 97–99; and Carothers, Fractional Money, pp. 91–95.Google Scholar

20 There are two cases in which legal bimetallism can be effective. If the country happens to select a mint ratio close to the world gold/silver price ratio, bimetallism results as long as the divergence of the ratios is within limits (set by arbitrage costs and market imperfections). Such a case could occur only temporarily. A lasting bimetallism happens if the country possesses a sufficient stock of gold and silver coin and is important enough in the international economy to dominate the world gold/silver price ratio. England had effective bimetallism for a few years at the turn of the eighteenth century, in the process of switching from an effective silver to an effective gold standard. (See SirFeavearyear, Albert, The Pound Sterling [Oxford, 1963], pp. 151–52.) France, with a mint ratio of 15 1/2, was in a position of dominance from 1803 to 1850.Google Scholar (See Yeager, Leland B., International Monetary Relations [New York, 1976], p. 296).Google Scholar

21 The market series, compiled by Soetbeer, Adolf, Edelmetall-Produktion (Gotha, 1880), pp. 130–31, is of much higher quality than alternative data. The Soetbeer series is an annual average of twice-weekly official market quotations in Hamburg to 1832 and uses generally accepted London data thereafter.Google Scholar In contrast, alternative series (based on the London market) exhibit neither their data source nor their method of construction and furthermore suffer from obvious errors—both in the level of some observations and in their year-to-year movement. See Horton, S. Dana, various appendices, International Monetary Conference, pp. 649, 701, 708–9;Google Scholar and Laughlin, J. Laurence, The History of Bimetallism in the United States [henceforth, Bimetallism] (New York, 1896), pp. 288–91. The French mint ratio of 15 1/2 is not used in place of the Soetbeer data because, while the world price ratio may have been principally determined by the French ratio, deviations did occur and in fact were the norm. Indeed, for a minority view claiming that the reach of French bimetallism has been exaggerateGoogle Scholar, see Shaw, W. A., The History of Currency (New York, 1896), pp. 178–80.Google Scholar

22 His computed average market ratio in the United States was 14.99, the world ratio in 1791 was 15.05, and the recommended and adopted ratio 15.

23 Again the Soetbeer data are used for the 1834–1873 market rate. The fact that the world gold-price ratio rose above 16 in 1874 is irrelevant because by that time silver had been reduced to subsidiary coinage in the United States and in any event the United States was then on the paper greenback standard (see footnote 24). Five years later the United States was on an effective monometallic gold standard. The two episodes (1792–1834 and 1834–1873) of the divergence between legal and market rates are described by Carothers, , Fractional Money, pp. 75, 81–101; Hepburn, Currency in the United States, pp. 47–61; and Watson, Coinage, pp. 71–73, 78–96.Google Scholar

24 The move to formal monometallism began with the Act of February 21, 1853, which provided for fiduciary coinage of silver pieces below a dollar, reducing their weight (but not fineness) by about 7 percent and limiting their legal-tender status to $5. Twenty years later the Act of February 12, 1873 terminated coinage of the silver dollar. A “trade dollar” was to be coined, but it was included with subsidiary coins and given the restricted legal tender. (There was also a slight increase authorized in the weight of subsidiary silver coins.) So silver would now play the role of subsidiary coinage only, The United States was now formally on a gold standard, but ironically the 1873 Act occurred during the paper greenback period: the United States would not rejoin the gold standard until 1879. The 1853 and 1873 legislations are discussed by Carothers, , Fractional Money, pp. 113–23, 223–40; Hepburn, Currency in the United States, pp. 63–66, 271–73; and Taxay, U.S. Mint, pp. 217–27, 249–58.Google Scholar

25 This phenomenon applies to the British suspension of specie payments in 1797–1821; it was also part of the colonial experience with paper money. The colonies did not set fixed rates between paper currency and coin, and markets existed in which the two types of money traded for each other. Perkins writes of “the market value of the paper relative to specie and foreign exchange” in the colonial period (Economy, p. 111).Google Scholar He notes that in situations in which paper had depreciated, creditors would accept either specie or paper money at its current market value. In contrast, during the Continental-money experience of the Revolutionary Period, Gresham's Law operated in full force and coin disappeared from circulation. The reason is that the states legislated strict parity of the paper with coined money. The penalties for not respecting the face value of Continental currency were severe. “The notes were made full legal tender and refusal to accept them forfeited the debt and incurred other money penalties, pillory, imprisonment, loss of ears even, and being outlawed as enemies of their country” (Hepburn, , Currency in the United States, p. 17).Google Scholar

26 The paper standard of 1814–1817 is discussed by Sumner, American Currency, pp. 64–75; Bolles, Albert S., The Financial History of the United Stares (New York, 1894), pp. 261–83, 317–29;Google ScholarSmith, Walter Buckingham and Cole, Arthur Harrison, Fluctuations in American Business, 1790–1860 (Cambridge, Massachusetts, 1935), pp. 25–29;Google ScholarHammond, , Banks, pp. 227–50; Report from the Secretary of the Treasury … Transmitting Statements of the Rates of Exchange [henceforth, Report of 1838], Senate Document No. 457, 25th Cong., 2nd sess., 05 28, 1838, p. 5; those of 1837–1842 by Davis and Hughes, “Dollar-Sterling Exchange,” p. 61;Google ScholarTemin, Peter, The Jacksonian Economy (New York, 1969), pp. 113–18;Google ScholarSumner, , American Currency, pp. 132–52; and Hammond, Banks, pp. 465–501;Google Scholar and that of 1861–1878 by Officer, Lawrence H., “The Floating Dollar in the Greenback Period: A Test of Theories of Exchange-Rate Determination,” this JOURNAL, 41 (09 1981), 629–50 and the references cited there. Suspensions in other periods did not noticeably affect the foreign exchange market for any of a variety of reasons—limited number of banks involved, brief time span of suspension, and the development of a more integrated foreign exchange market, which later in the nineteenth century became a truly national one.Google Scholar See Davis, and Hughes, , “Dollar-Sterling Exchange,” p. 62;Google Scholar and Perkins, Edwin J., Financing Anglo-American Trade (Cambridge, Massachusetts, 1975), pp. 155–56.CrossRefGoogle Scholar

27 Histories of the British monetary standard are provided by Feavearyear, , Pound Sterling;Google Scholar and SirCraig, John, The Mint (Cambridge, 1953).Google Scholar See also Ashton, T. S., An Economic History of England: The 18th Century (London, 1955), pp. 167–77;Google Scholar and Cannan, Edwin, The Paper Pound of 1797–1821 (London, 1925), pp. vii–xlvi.Google Scholar Basic legislation and other documents for this section are reprinted in International Monetary Conference, pp. 309–49, 373–78.Google Scholar

28 Until 1666, coinage at the mint had generally been free in the open sense, but with a charge for seigniorage or mint expenses. In that year an act established both free and gratuitous coinage of gold and silver. England thus became the first country to have this mint policy.Google Scholar

29 The legislation in effect, the Act of 1696, was innocuous: “bullion produced from English coin might now be passed through customs by the simple expedient of swearing that it was not so produced” (Feavearyear, , Pound Sterling, p. 152).Google Scholar

30 See footnote 24.Google Scholar

31 The remaining restriction (concerning taking an oath that bullion to be exported was not produced from clippings of silver coin) was removed in 1821.Google Scholar

32 The section on dollar-sterling parity, entitled “Note, on the proportional value of the pound sterling and the dollar,” is reprinted in International Monetary Conference, pp. 490–501.Google Scholar

33 Many observers—both contemporary and later—considered the gold par to be the appropriate parity measure for the 1792–1834 period. In fact, it was often called “real par.” Among such contemporary writers, for example, are S. D. Ingham (Secretary of the Treasury), Samuel Moore (Director of the United States Mint), and John White (Cashier of the Bank of the United States). See Report from the Secretary of the Treasury Respecting the Relative Value of Gold and Silver [henceforth, Report of 1830], House Document No. 117, 21st Cong., 1st sess., 05 29, 1830, pp. 6, 49, 67.Google Scholar Later authors who adopt the gold par include Hepburn, (Currency in the United States, p. 61)Google Scholar and Macesich, George (“Sources of Monetary Disturbances in the United States, 1834–1845,” this Journal, 20 [09 1960], 414, fn. 21).Google Scholar

34 Adams comments: “It is contended by some writers upon the commercial branch of political economy, that this medium is the only equitable par of exchanges; but this is believed to be an error” (International Monetary Conference, p. 492).Google Scholar

35 For example, Statutes at Large, vol. 16, 42nd Cong., 3rd session, chap. 269, p. 603; Hepburn, Currency in the United States, p. 274; Davis and Hughes, “Dollar-Sterling Exchange,” p. 55;Google ScholarCole, Arthur H., “Evolution of the Foreign-Exchange Market of the United States,” Journal of Economic and Business History, I (05 1929), p. 407;Google ScholarMacesich, , “Sources,” p. 416, fn. 21; Sumner, American Currency, p. 112;Google Scholar and Myers, Margaret G., The New York Money Market (New York, 1931), p. 73.Google ScholarYeager, (International Monetary Relations, p. 310) states the parity correctly as $4.86656.Google Scholar

36 As early as 1829 Albert Gallatin used the same technique to compute dollar-sterling parity for a gold/silver price ratio of 15.808, the “aver, ratio silver bullion to gold coin” (Report of 1830, pp. 36, 43). This ratio is close to the Soetbeer value of 15.78 for 1829. In 1830 S. D. Ingham corrected “real par” (gold par) for the divergence between the American mint ratio (15) and the average price ratio of gold to silver bullion in England over 1820–1829(15.8), thus obtaining “real par at the true ratio” (Report of 1830, p. 6). In 1838 a later Secretary of the Treasury referred to the Gallatin estimate and pointed out that: “The true par varied as the market value of gold varied, when compared with silver” (Report of 1838, p. 3). Sumner mentions a Gallatin estimate and notes “the difference between the coinage rating and the true value of the metals” (American Currency, pp. 104–5). Finally, Temin suggests that the gold pound be converted to a silver equivalent via the London gold/silver market price, which he takes as 15.7 for the early 1830s (Jacksonian Economy, pp. 65–66). Also see footnote 21.Google Scholar

37 The mint finding probably refers to Isaac Newton's valuation of the Spanish dollar (“piastre of Spain or Sevil piece of 8 Reaus”) as 53.88 pence. See “Report of the Officers of the Mint” dated 07 17, 1702, in Shaw, Wm. A., Select Tracts and Documents (London, 1896), p. 140.Google Scholar The Proclamation was in response to the differential rating of the Spanish dollar in the American colonies; it permitted an overvaluation of the Spanish dollar or other foreign coin by up to one-third in local shillings. For complete histories, see Brock, Leslie V., The Currency of the American Colonies, 1700–1764 (New York, 1975), pp 130–67Google Scholar: and Nettles, Curtis Putnam, The Money Supply of the American Colonies Before 1720 (Madison, 1934), pp. 229–49.Google Scholar

38 See, for example, Gallatin, and White, , in Report of 1830, pp. 39, 67; and Cole, “Evolution,” p. 406, fn. 1.Google Scholar

39 By Nussbaum, , Dollar, p. 32; and Davis and Hughes, “Dollar-Sterling Exchange,” p. 55.Google Scholar

40 Statutes at Large, vol. I, 1st Cong., 1st sess., chap. 5, p. 41.Google Scholar

41 Statutes at Large, vol. 4, 22nd Cong., 1st. sess., chap. 227, p. 593.Google Scholar

42 Statutes at Large, vol. 5, 27th Cong., 2nd sess., chap. 66, p. 496.Google Scholar See Hepburn, , Currency in the United States, p. 62; and Nussbaum, Dollar, p. 32.Google Scholar

43 See Sumner, , American Currency, p. 112; Cole, “Evolution,” p. 407, fn. 1; and Myers, New York Money Market, p. 73.Google Scholar

44 Statutes at Large, vol. 17, 42nd Cong., 3rd sess., chap. 269, p. 603.Google Scholar

45 see Sumner, , American Currency, p. 112; and Cole, “Evolution,” p. 407, fn. 1.Google Scholar

46 For this usage, see White, , in Report of 1830, p. 67; Myers, New York Money Market, p. 72; Macesich, “Sources,” p. 414, fn. 21; and Hepburn, Currency in the United States, p. 61.Google Scholar

47 In other words, exchange-rate parity was expressed as 109.5 rather than 100. See, for example, Hepburn, , Currency in the United States, pp. 61–62.Google Scholar

48 Statutes at Large, vol. 1, 2nd Cong.. 2nd sess., chap. 6, p. 300.Google Scholar

49 On the circulation of foreign coins in the United States since 1789, see Bolles, , Financial History, pp. 169–74, 516; Carothers, Fractional Money, pp. 66–81, 101–150; and Hepburn, Currency in the United States, pp. 46–48, 60.Google Scholar

50 Cole, , “Evolution,” pp. 406–7, fn. I;Google ScholarCole, Arthur H., “Seasonal Variation in Sterling Exchange,” Journal of Economic and Business History, 2 (11 1929), p. 204, fn. 2;Google ScholarDavis and Hughes, “Dollar-Sterling Exchange,” p. 54.Google Scholar

51 While the Spanish dollar contained more pure silver, the American dollar was better designed and brighter. Clever American traders exported American dollars to the West Indies in return for Spanish dollars, and either deposited these at the United States mint for recoinage or put them into circulation after removing some of the silver content. At the direction of President Jefferson, who was aware of the problem, the United States Mint suspended coinage of silver dollars in 1806, not to be resumed until 1840 (apart from nominal amounts produced in 1836 and 1839). Accounts of the dollar coinage suspension are provided by Carothers, , Fractional Money, pp. 75–76; Watson, Coinage, pp. 73–75; and Taxay, U.S. Mint, pp. 125–26.Google Scholar

52 Statistics on mint production by coinage denomination are found in Annual Report of the Director of the Mint, 1942 (Washinton, D.C., 1942), pp. 68–73.Google Scholar

53 The legislative activity that led to the gold-dollar coinage and the aftermath at the mint are described by Taxay, , U.S. Mint, pp. 201–10. Interestingly, what was supposed to be the predominant gold piece, the $10 eagle, was not coined in the period 1805–1837; rather, half- and quarter-eagles were produced.Google Scholar

54 The principal gold coin over the preceding century was the guinea, worth 21/20 pounds.Google Scholar

55 In fairness to Davis and Hughes, they see only data unavailability as preventing this correction; but suitable data do in fact exist. Also, their methodology for correcting for the paper greenback dollar (1862–1878)—when Britain was on an actual and the United States on a potential gold standard—differs from that adopted here for the earlier period. (See Davis, and Hughes, , “Dollar-Sterling Exchange,” p. 55.)Google Scholar

56 Davis, and Hughes, , “Dollar-Sterling Exchange.”Google Scholar

57 Perkins, “Foreign Interest Rates.” Perkins cites twentieth-century authorities for the criteria. but contemporary observation also confirms his thesis of the primacy of the British over the American interest rate. Cole quotes an 1837 periodical as follows: “A bill at sight would command about 1/2 percent more [than a 60-day bill], equal to the interest in London for 60 days” (“Evolution,” p. 414, fn. 1). Source data for Perkins's empirical finding are from the House of Brown banking firm and the Financial Review.Google Scholar

58 The Trotter data involve only sight bills, and therefore no interest adjustment, from 1882 onward.Google Scholar

59 Perkins's computations show generally small divergences between the two series.Google Scholar

60 These authors, however, err for the years 1835–1836; the true parity then was $4.8708. See Table 5.Google Scholar

61 Both these points were noticed by Temin, , Jacksonian Economy, p. 66, fn. 16.Google Scholar

62 The data are in Davis, and Hughes, , “Dollar-Sterling Exchange,” pp. 76–78.Google Scholar

63 Originally published in Report of 1830, pp. 78–85, the series is reprinted in International Monetary Conference, pp. 634–41.Google Scholar

64 Report of 1830, pp. 67, 78.Google Scholar

65 Report of 1830, p. 92; reprinted in International Monetary Conference, p. 646. It is true that the data are only allegedly market transactions, based on White's once-removed report. One might even surmise that the series represents merely quotations from the leading Baltimore dealers, but this would imply that White was lying in describing the data as compiled from “average monthly sales” and “actual sales” of the dealers. As he was an official of the Bank of the United States responding to a set of queries from the Secretary of the Treasury, he would have no incentive to describe information incorrectly. As for the possibility that the dealers themselves misinformed White as to the nature of the data they were providing, again what would have been the advantage for them to do so? Further, the dealers are described as “of high standing” and “highly respectable”—unlikely sources of misinformation. Although definitive proof is lacking, it is reasonable to conclude that the bills-of-exchange data are indeed market transactions, as White asserts.Google Scholar

66 I could find only two references to the White series in the economics literature. Hepburn (Currency in the United States, p. 55) refers to “data relative to exchange … furnished by … John White, Cashier of the Bank of the United States.” Myers (New York Money Market, p. 69) writes: “When the Secretary of the Treasury inquired for the sterling rates at Baltimore between 1791 and 1829, he was given those which had been compiled from the ‘actual sales effected by two highly respectable mercantile houses.’”Google Scholar

67 The series has been exhibited once before in quarterly form, by Silberling, Norman J., “British Prices and Business Cycles, 1779–1850,” Review of Economic Statistics, 5 (10 1923), 257; but four of his data observations are incorrect. The Overend-Gurney data extend to the year 1857 and could have provided Perkins with a measure superior to bank rate for the subperiod 1835–1857.Google Scholar

68 The data source is SirClapham, John, The Bank of England (Cambridge, 1945), vol. I, p. 429. For the second quarter of 1822, interpolation yields a rate of 4.88 percent.Google Scholar

69 See King, W. T. C., History of the London Discount Market (London, 1936), pp. 12, 14–15, 27.Google ScholarSilberling, (“British Prices,” p. 241) writes: “The Usury Laws fixed the maximum rate of interest and discount at five per cent, and contemporary literature indicates that this rate was, at least from 1790 to 1822, the prevailing and unvarying rate of discount throughout the country.” The principal exception is from mid-1817 to mid-1818, when evidence suggests that the market rate dipped below the bank rate.Google Scholar See King, , London Discount Market, pp. 27–29.Google Scholar

70 I am grateful to Marjorie A. Kierstead of the Manuscripts and Archives Department of Baker Library at Harvard University for making available the records of the Trotter bills of exchange. In most cases, I was able to reconcile the Davis-Hughes annual table with the original records: in a few years there remain slight discrepancies. The resulting quarterly table of maturity lengths is available from the author on request. The predominant maturity is 60 days.Google Scholar

71 Though not stated explicitly in the table, this maturity is the only one mentioned in White's accompanying letter and documentation.Google Scholar

72 Arithmetically, the interest adjustment ranges from 94 to 4.72 cents added to the observed exchange rate. This relatively small correction is a reflection primarily of the low British interest rate compared to what surely was a higher American short-term interest rate, though American data are lacking prior to 1831. For 1835–1860, for which interest data on both sides of the Atlantic exist, Perkins finds that use of the British rather than American interest rate reduces the sterling premium (or increases the discount) in 100 out of 104 quarters.Google Scholar

73 House of Commons, Reports Respecting the Bank of England resuming Cash Payments, 12th 05 1819, Reports from Committees, Session 21 01–13 07 1819, vol. 3, Appendix C.l., pp. 336–54; Report from the Committee of the Bank of England Charter, 11 08 1832, Reports from Committees, Session 6 12 1831–1816 08 1832, vol. 6, Appendix No. 96, pp. 98–100.Google Scholar

74 Hawtrey, R. G., Currency and Credit, (London, 1950), p. 283. There is a certain logic to this unchanged panty measure for 1797–1821. The paper pound meant that bullion markets in either form of specie were of equal significance. With a direct silver-to-silver comparison, the gold/silver world price is irrelevant. In 1816 British silver coin became merely subsidiary by law, so its metallic depreciation is properly ignored.Google Scholar

75 The series is constructed for 1797 (first quarter)–1821 (first quarter). By April 3, 1821. a month before resumption, the Spanish dollar was quoted at 58 pence, below par.Google Scholar

76 See Moore, Samuel, in Report of 1830, p. 47. Data sources for Philadelphia and Baltimore are Moore and White in Report of 1830, pp. 52–53, 92.Google Scholar

77 For some purposes, the corresponding exchange-rate series before correction for paper standards, expressed either in dollar terms (Step 5) or as a deviation from true parity (Step 6), may be of greater use to researchers. These series are available on request from the author.Google Scholar

78 It should be noted in this respect that the 6.20 value for White in 1811–1820 is not as high relative to other figures as it appears. For this decade the Davis-Hughes series is missing 14 of 40 observations. If one were also to exclude these same observations from the White series, its mean, variance, and mean of absolute values would fall to 98, 4.29, and 3.64.Google Scholar

79 In comparing their post-1834 series with that of Martin (a New York series), Davis and Hughes ascribe differences as late as 1863–1864 to “conditions peculiar to Philadelphia.”Google Scholar

80 Data sources are as follows: Martin, Joseph G., Martin's History of the Boston Stock and Money Markets (Boston, 1898), pp. 10–28;Google ScholarSmith, and Cole, , Fluctuations, pp. 187–90; and Report of 1830, pp. 57–61 (reprinted in International Monetary Conference, pp. 614–16). These series are all based on published data rather than on actual transactions.Google Scholar

81 Martin's series consists primarily of first-of-month data. Therefore Step 1 involves averaging the four months spanning a quarter.Google Scholar

82 The data sources are Report of 1830, pp. 52–57 (reprinted in International Monetary Conference, pp. 611–13) and Report of 1838, pp. 64–75.Google Scholar For 1826–1829, the former data (for the Moore series) emanate from actual transactions of the Bank of the United States. See Report of 1830, p. 46.Google Scholar

83 Report of 1838, p. 137.Google Scholar

84 Davis and Hughes write: “There is no doubt that these were mainly ‘first class’ bills” (“Dollar-Sterling Exchange,” p. 53).Google Scholar

85 Interestingly enough, analogous peculiarities do not exist for the 1835–1895 period. Davis and Hughes find that the maximum divergence between their post-1834 data and the Martin series is about 8 percent of parity (“Dollar-Sterling Exchange,” pp. 56–58). Perkins compares the Trotter series with exchange-rate data from the Financial Review for 1870–1895, finding that the differential between the two series is uniformly low (and exceeding 1 percent of parity in only 3 quarters).Google Scholar

86 The series are located as follows: Davis-Hughes, (DH) and White (BW) in Appendix Table I; Perkins (PP) in Perkins, “Foreign Interest Rates,” pp. 410–15.Google Scholar

87 The values are much too low for this measure to be the variance as ordinarily defined, although Davis and Hughes call it such (“Dollar-Sterling Exchange,” p. 58).Google Scholar

88 See Davis, and Hughes, , “Dollar-Sterling Exchange,” pp. 58–61, 63–64; Perkins, Financing, pp. 155–56;Google Scholar and Einzig, Paul, The History of Foreign Exchange (London, 1970), pp. 172–73, 194–95.CrossRefGoogle Scholar

89 Even under true metallic standards in the countries, there is no force pulling exchange rates to the mint parity itself. The justification for regarding parity as the norm can be only a “law of large numbers” within the spread. Einzig (History of Foreign Exchange, p. 173) argues that for most of the nineteenth century the gold import point was further from parity than was the gold export point. Then the “law of large numbers” would result in a central tendency (norm) less than parity.Google Scholar

90 In the previous section the mean of absolute values was interpreted as a measure of central tendency; here it is considered an indicator of variation.Google Scholar

91 Cited in Perkins, , Financing, p. 27.Google Scholar

92 See Cole, , “Evolution,” pp. 390–94, and Perkins, Financing, p. 7.Google Scholar