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The Long Swing: Comparisons and Interactions Between British and American Balance of Payments, 1820–1913*

Published online by Cambridge University Press:  03 February 2011

Jeffrey G. Williamson
Jeffrey G. Williamson
Affiliation:
Vanderbilt University
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Extract

In the past decade there has been an extremely active interest in theevidence and importance of the twenty-year building cycle, or Kuznets cycle as Lewis suggests we call it, in both American nineteenth-century development and British development after 1870. The evidence of building cycles in the United States is perhaps more extensive and seems clearly, in the research accumulated by Kuznets, Burns and Abramovitz, to indicate a long swing in the general process of growth, not just long swings isolated to the building trades. Whereas American long swings pervade all domestic series of output, income and investment, British experience seems somewhat different. After 1870 long swings in British capital exports alternated with long swings in domestic investment in a fashion which eliminated excess fluctuations in income and output, which would have been due mainly to fluctuations in aggregate demand.

Type
Articles
Information
The Journal of Economic History , Volume 22 , Issue 1 , March 1962 , pp. 21 - 46
Copyright
Copyright © The Economic History Association 1962

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References

1 See for instance: Matthews, R. C. O., The Business Cycle (Chicago: The University of Chicago Press, 1959)Google Scholar, especially Chapter 12; Abramovitz, Moses, “Resource and Output Trends in the United States since 1870,” American Economic Review, XLVI, No. 2 (05 1956), 5–24Google Scholar; Thomas, Brinley, Migration and Economic Growth (Cambridge: The University Press, 1954)Google Scholar; and most recently, Cooney, E. W., “Long Waves in Building in the British Economy of the Nineteenth Century,” The Economic History Review, Second Series, XIII (12 1960), 257–69CrossRefGoogle Scholar.

2 Kuznets, Simon, Long Term Changes in National Income of the United States since 1869, Income and Wealth. Series II, published for the International Association for Research in Income and Wealth (Cambridge: Bowes and Bowes, 1952)Google Scholar; Moses Abramovitz work is most recently summarized in The Nature and Significance of Kuznets Cycles, mimeographed for the Stanford Research Center in Economic Growth (Dec. i960), and which appeared in Economic Development and Cultural Change, IX, No. 3 (04 1961), 225–48Google Scholar; Burns, Arthur, Production Trends in the United States Since 1870 (New York: National Bureau of Economic Research, 1934)Google Scholar.

3 This relationship has perhaps been most energetically pursued by Cairncross, A. K., Home and Foreign Investment, 1870-1913 (Cambridge: The University Press, 1953)Google Scholar; Thomas, Migration and Growth, Economic; and Lewis, W. A. and O'Leary, P. J., “Secular Swings in Production and Trade, 1870-1913,” The Manchester School of Economic and Social Studies, XIII (05 1955). 113–52Google Scholar.

4 North, Douglass C., The Economic Growth of the United States, 1890-1860 (Englewood Cliffs, N.J.: Prentice-Hall, Inc., 1961)Google Scholar. This excellent little book appeared after this manuscript was completed.

5 North, Douglass C., “The United States Balance of Payments, 1790-1860,” Trends in the American Economy in the Nineteenth Century. Studies in Income and Wealth, Vol. 24, of the National Bureau of Economic Research (Princeton: Princeton University Press, 1960), pp. 573–627Google Scholar; Simon, Matthew, “The United States Balance of Payments, 1861-1900,” Trends, pp. 629–715Google Scholar; Imlah, Albert H., Economic Elements in the Pax Britannica (Cambridge, Mass.: Harvard University Press, 1958).CrossRefGoogle Scholar In the research contained in this paper I have used North's and Simon's estimates to cover nineteenth-century United States and Imlah's estimates for British balance of payments 1820-1913. The estimates for net capital movements over United States borders from 1901-1913 are taken from Goldsmith, Raymond W., A Study of Saving in the United States (3 vols; Princeton: Princeton University Press, 1955), I, 1078–93Google Scholar, Tables K-i through K-7.

6 In these tests, both series were smoothed by a five-year moving average after their trends had been removed by

7 North, Douglass C. has presented this argument most cogently, an argument to which I also subscribe, in “Location Theory and Regional Economic Growth,” Journal of Political Economy, LXIII, No. 3 (06 1955), 243–58CrossRefGoogle Scholar; “Agriculture and Regional Economic Growth,” American Farm Economic Association Proceedings, XLI, No. 5 (12 1959), 943–51Google Scholar; “International Capital Flows and the Development of the American West,” The Journal of Economic History, XVI, No. 4 (12 1956), 493–505Google Scholar; The Economic Growth of the United States, 1790–1860.

8 See also my note in a recent issue of this JOURNAL, “International Trade and United States Economic Development: 1827-1843,” The Journal of Economic History, XXI, No. 3 (09 1961)Google Scholar

9 As indicated earlier in this paper, Cairncross, Matthews, Lewis and O'Leary, and Thomas have shown the most interest in the evidence of long swings or Kuznets cycles in British home investment, as well as the apparent inversion between British home and foreign investment.

10 Cairncross, , Home and Foreign Investment, pp. 2, 4Google Scholar.

11 Of course changes in net foreign investment would be more pertinent than absolute levels in determining the relative importance of capital movements as a stabilizing component of aggregate demand. However, American fluctuations in the import of capital were not so very much more violent than British variations in the export of capital. For that matter, it is also true that net capital flows are not precisely measures of net foreign investment.

Cairncross estimates are consistent with some recent estimates of the importance of external trade (exports plut imports of goods) as a share in total income. Deutsch and Eckstein estimate that from 1960-1920 British external trade was from 50-60 per cent of national income. The same share in the United States was 15-20 per cent from 1819-1839 and 10-15 Per cen t from 1859-1909. Deutsch, K. W. and Eckstein, A., “National Industrialization and the Declining Share of the International Economic Sector, 1890-1959,” World Politics, XIII (01 1961), 267–99CrossRefGoogle Scholar.

12 See footnote 15.

13 By indirect, I have in mind the effects of the migration of labor upon income and prices in both nations.

14 United States imports and import prices exhibit a reasonably significant positive correlation over the long swing. This may be explained in the same manner since in this case American import demand and British export prices move in sympathy. Given our assumptions above, it is more likely that British imports and import prices move inversely.

15 Although not in its timing, the amplitude of long swings in American net capital imports in part explained by inverse conditions in Great Britain (“push”). In regression analyses test the explanatory power of British and American stock prices in explaining United States capital imports, when we include only American (“pull”) conditions R2 = 624 (1873-1914), but when we include conditions in both countries,

The same results occur in the period 1844-1860; if we use only American stock prices, R2 = .769; if we include conditions in both countries, R2 = .910. These tests were done where K, net capital movements, and both P's, general stock prices in Great Britain and railroad stock prices in American, are trendless and smoothed.

16 All British balance of payments estimates are taken from Imlah, Economic Elements, Imlah utilizes the same techniques employed by North and Simon in estimating nineteenth-century net capital flows. However, it should be noted that Imlah's transportation account, which is an important part of his balance of payments, has been the subject of criticism. See particularly the article by North, Douglass C. and Heston, Alan, “The Estimation of Shipping Earnings in Historical Studies of the Balance of Payments,” Canadian Journal of Economics and Political Science, XXVT, No. 2 (05 1960), 265–76.CrossRefGoogle Scholar The sources of the British data which are used in the charts are primarily from Imlah, , Economic Elements, pp. 94–98Google Scholar; I have removed trends or calculated rates of change (those series which result from such adjustment are available upon request). The index of home investment and imported foodstuffs on Chart 1 is from Thomas, , Migration and Economic Growth, pp. 297Google Scholar and 328 respectively. In Chart 2, exports of finished iron and steel goods are also from Thomas, , Migration and Economic Growth, p. 293Google Scholar.

17 One can not explain the evidence of long swings in deflated British imports by terms of trade movements. Imlah's net barter terms of trade do reveal long swings positively correlated with domestic investment and with deflated imports. However, these long swings in the net barter terms of trade occur with even more violent amplitude prior to the 1850's, while deflated imports reveal long swings only after the 1850's.

18 After this paper was submitted, Feinstein's estimates of British domestic investment and net national income appeared in the Economic Journal. Regretfully, his estimates did not appear soon enough for me to make use of them in this study. Feinstein, C. H., “Income and Investment in the United Kingdom, 1856-1914,” Economic Journal, LXXI, No. 282 (06 1961), 367–85CrossRefGoogle Scholar.

19 Matthews, , The Business Cycle, p. 222Google Scholar.

20 Thomas, , Migration and Economic Growth, p. 175Google Scholar.

21 Cooney, , “Long Waves in Building in the British Economy of the Nineteenth Century,” p. 258Google Scholar.

23 Cairncross, A. K. and Weber, B., “Fluctuations in Building in Great Britain, 1785-1849,” The Economic History Review, Second Series, IX, No. 2 (12 1956), 283–97Google Scholar.

24 Shannon, H. A., “Brick—a trade index,” Economica, New Series, No. 1 (1934), pp. 300–18CrossRefGoogle Scholar.

25 Although rates of growth of imports in current prices do not reveal long swings over the nineteenth century as a whole, and deflated imports do not reveal long swings prior to the 1850's, the period 1828-1841 does exhibit a movement in import values (in rates of change) similar to export movements. Indeed, this is the only period when import values indicate evidence of something akin to the long swing mechanism. Apparently, although real income movements do not seem to reveal a long swing 1820-1840 and thus similarly for deflated imports, price fluctuations (primarily American cotton prices) are severe enough to cause a movement in import values similar to, and exceeding in rate of change, export movements. Thus, in spite of the long swing in rates of change of exports in current values from 1824-1839, the trade balance does not reflect it in such a way as to extend the evidence of long swings in the trade balance (positively related to export movements) back before the 1850's. Compared to other nineteendi-century movements this is a very unusual period in English history indeed. One cannot help but be further impressed with the dissimilarity between British movements prior to the 1850's and afterwards. Apparendy the long swing, which was already so evident in United States development, either had not yet foisted itself upon English development, or whatever endogenous conditions were necessary to generate the long swing were not yet in evidence. Surely the popularized mechanism of the interaction of the Atlantic economy was not the same prior to the 1850's as after those years.

26 Cairncross, and Weber, , “Fluctuations in Building in Great Britain, 1785-1849,” p. 285Google Scholar.

27 Cairncross, Home and Foreign Investment.

28 Madden, John J., British Investment in the United States, 1860-1880. Conference on Research in Income and Wealth, unpublished manuscript (09 1956), Table 10, p. 46Google Scholar. I would like to thank Professor Madden for allowing me to refer to his work.

29 For an assertion of this intuitive feeling see Cooney, , “Long Waves in Building in the British Economy of the Nineteenth Century,” p. 267Google Scholar.