Capital Imports and the Jacksonian Economy: A New View of the Balance of Payments

This paper offers a new intrepretation of United States balance of payments adjustment in the bimetallic period from 1820 to 1860 during which President Jackson vetoed the charter renewal of the Second Bank of the United States--an event destined to spark controversy over the macroeconomic interpretation of the period. Raising of the gold-silver price ratio in 1834 and the discovery of gold in the 1850s confirmed a United States commitment to the gold standard. Accordingly, new explanations of the period focussed on international factors, andmany authors tried to make sense of the facts using price-specie-flow theory. Weaknesses in this view were noted long before any more satisfying alternative explanation emerged. In this paper, a portfolio theory of adjustment is outlined that highlights the significance of the substantial international capital flows witnessed during the antebellum period. This interpretation is shown to be more consistent with the evidence than the more traditional price-specie-flow mechanism, and serves to underline the importance of international capital mobility to the mechanism of balance of payments adjustment. The United States price level was affected by United States and/or British banking events only to the small extent that these may have determined the world money stock and world price level. Inflows and outflows of specie were not the cause of changes in the United States price level, but instead, the result of changes in the United States excess demand for money, in turn, the result of major changes in real economic activities in the United States relative to the rest-of-the-world that contributed to the changes in relative price levels.