¹ The quality of land and resources is of course relative to the state of technology.

² A further limitation of this paper is that it does not deal with the British financing of American trade. It should perhaps be emphasized here that the financing of a substantial part of our export trade, and some domestic trade as well, was probably as important in American development as were the long-term capital movements that are the subject of this paper.

³ The quantitative data on American capital imports in the nineteenth century will be presented in as much detail as possible in my forthcoming paper at the Conference on Income and Wealth in the Nineteenth Century, jointly sponsored by this Association and the National Bureau of Economic Research.

⁴ Brinley Thomas’ view of the Atlantic economy as an evolving unit provides a useful perspective upon the movement of people and capital in the course of nineteenth-century development. See his Migration and Economic Growth (Cambridge: Harvard University Press, 1954), Ch. 3.Google ScholarPubMed

⁵ The uniqueness of this period with respect to its relative freedom from government intervention makes nineteenth-century international development very different from that of the twentieth century. See Nurkse, Ragnar, “International Investment Today in the Light of Nineteenth-Century Experience,” The Economic Journal, LXIV, No. 255 (December 1954).Google Scholar

⁶ “The Early Transportation and Banking Enterprises of the State in Relation to the Growth of Corporations,” Quarterly Journal of Economics, XVII (November 1902), 115.Google Scholar

⁷ See Johnson, Emory and others, History of the Domestic and Foreign Commerce of the United States (Washington: Carnegie Institute, 1915)Google Scholar for the classic account of this trade.

⁸ The expansion was primarily into Alabama in 1816–1819; into Alabama, Mississippi, Louisiana, Arkansas, and Florida in the 1830's; and into the same five southern states and Texas in the 1850’5.

⁹ These states were Ohio, Indiana, Illinois, and Missouri in 1816–19, to which must be added Michigan and Wisconsin in the 1830’s.

¹⁰ Cole, Arthur H. and Smith, Walter B., Fluctuations in American Business, 1790–1860 (Cambridge: Harvard University Press, 1935), p. 73.Google Scholar

¹¹ By 1850 east-west railroads were an important factor in this development and began seriously to eat into canal revenues. See Bogart, E. L., Internal Improvements in Ohio (New York: Longmans, Green & Co., 1924), ch. 2.Google Scholar

¹² These surges in westward expansion are most carefully analyzed in Berry's, T. S.Western Prices Before 1861 (Cambridge: Harvard University Press, 1943).Google Scholar

¹³ The panic of 1837 caused only a temporary lull in the westward movement and it was not until 1839 that the movement collapsed.

¹⁴ Actual or anticipated reductions in production or transfer costs also played a role that will be described below.

¹⁵ Despite the speculative character of public land sales, they appear to be a rather good measure of westward development. A. H. Cole's study of the course of public land sales and population movements in several states indicates a close relationship. “Cyclical and Sectional Variations in the Sales of Public Lands, 1816–1860,” The Review of Economic Statistics, IX (January 1927), 50.Google Scholar An analysis of land sales and production in five southern states from 1835 to 1842 indicates a lag of 4 to 5 years between surges in land sales and expanded production. Considering the time it took to clear land and plant a crop or two of corn, the actual lag indicated was not so substantial. The significance of the lag lies in its effect on prices as will be described below.

¹⁶ Data on the price of cotton may be found in Hammond, M. B., The Cotton Industry (Publication No. I, American Economic Association, 1897)Google Scholar, Appendix I. The data on land sales by states are found in Arthur Cole's “Variations in the Sale of Public Lands.”

¹⁷ Prices of wheat and corn were obtained from Cole's, A. H.Wholesale Commodity Prices in the United States, 1700–1861 (Cambridge: Harvard University Press, 1938).CrossRefGoogle Scholar

¹⁸ R. C. O. Mathews stresses that there is no evidence of an increase in the rate of growth of British demand for cotton in the 1830's over the 1820's. A Study in Trade Cycle History (Cambridge: The University Press, 1954), p. 53.Google Scholar Berry also reached the conclusion that demand for foodstuffs was less susceptible to variation than supply. Western Prices Before 1861, P. 535

¹⁹ See the following section for amplification of this point.

²⁰ It should be made clear that this paper is not concerned with the cyclical disturbances that affected prices but with the long swings in prices that are clearly evident by applying a nine-year moving average to prices. While the peak of these long swings is roughly coincidental with the peak of a cycle, nevertheless the decline in wheat prices and western expansion had already set in at least a year before the collapse of 1857.

²¹ An illustration will serve to clarify the process: Expansion into new cotton land was moderate as prices of cotton stabilized around 10 cents a pound in New York in the late 1820's. After 1832 the price began increasing and land sales rose rapidly in the five new cotton states than earlier. The peak was reached in 1835 and 1836, when more than five million acres of land were taken up in each year. However, the time interval involved in transferring land from speculator to cultivator, clearing the land, and getting it into production resulted in 1840 being the first year in which the production from these new states was felt. The crop in these five states jumped from 911,913 bales in 1839 to 1,538,904 bales in 1840. The lengthy period of depressed prices in the 1840's followed (data from M. B. Hammond, The Cotton Industry).

²² In the 1830's the British purchased primarily the securities of States that were floated for internal improvements (the bulk of them for canal construction) in the North and for commercial bank development for plantation expansion in the South. In the late 1840's the Germans provided the initial impetus and the British displayed a notable and understandable reluctance; however it was not long before the British were again purchasing American securities in volume. In this case, however, it was the private securities of railroads.

²³ This was in contrast to the periods of borrowing after 1873, when the United States continued to have a favorable trade balance.

²⁴ However, the extraordinary demand for wheat in 1847, the heavy influx of immigrants, and the gold discoveries accelerated the pace in the latter period.

²⁵ Thus the opening of the Erie Canal and the construction of the Pennsylvania Canal gave an early impetus to development in the Northwest in the late 1820's. Similarly the land boom in Indiana from 1845 to 1852 was primarily a response to the opening of the Wabash and Erie Canal. A. H. Cole, “Variations in the Sale of Public Lands,” p. 49.

²⁶ The induced investment in manufacturing during these expansive periods contributed substantially to the process of industrialization that was going on in the East.

J. S. Dusenberry decribes this multiplier-accelerator process resulting from westward development in his article “Some Aspects of the Theory of Economic Growth,” Explorations in Entrepreneurial History, III, No. 2 (December, 1950).Google Scholar

²⁷ The land boom in 1818 appears to have been of this character.

²⁸ Smith and Cole, Fluctuations in American Business, p. 60.

²⁹ Bullock, Charles J., Williams, John H., and Tucker, Rufus S., “The Balance of Trade of the United States,” The Review of Economic Statistics, I (July 1919), 218.Google Scholar

³⁰ Smith and Cole, Fluctuations in American Business, p. 79.

³¹ The peculiarities of banking in the 1830's deserve more than passing attention. The cessation of deposit of government funds in the Second Bank of the United States and the distribution of surplus revenues among the States played an important part in this inflation.

³² There is no room in this paper to discuss the immediate causes of the panic of 1837 and the ultimate collapse in 1839. See however, McGrane, R., The Panic of 1837 (Chicago: University of Chicago Press, 1924).Google Scholar For a recent able analysis see R. C. O. Mathews, A Study in Trade Cycle History, ch. 5.

³³ See footnote 15.

³⁴ Smith and Cole, Fluctuations in American Business, p. 65.

³⁵ Smith and Cole, Fluctuations in American Business, p. 50.

³⁶ Brinley Thomas, Migration and Economic Growth, p. 89, and Appendix IV, Table 96.

³⁷ See the summary account in Bullock, Williams, and Tucker, The Balance of Trade, p. 223.

³⁸ For an account of the Panic of 1857 and the circumstances surrounding it see Van Vleck, George, The Panic of 1857 (New York: Columbia University Press, 1943).Google Scholar