Mailing correspondent and address: Donald G. .... operating cost of steam- ships, the bulk of low value goods like wheat and flour tended to be shipped by sail ...
Integration and Convergence of Wheat and Flour Markets in the mid-19th Century North Atlantic Economy*
James M. Nason Research Department Federal Reserve Bank of Atlanta Donald G. Paterson Department of Economics University of British Columbia Ronald A. Shearer Department of Economics University of British Columbia Mailing correspondent and address: Donald G. Paterson, University of British Columbia, Department of Economics, 9th Floor, 1873 East Mall, Vancouver, BC, Canada. V6T 1Z1
* We thank the SSHRCC, the Hampton Fund and the Federal Reserve Bank of Atlanta for their support. Anthony Durocher provided valuable research assistance. The views expressed here are the authors’ and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. We would like to recognize the helpful comments of those at the conference on Market Performance and the Welfare Gains of Market Integration in History, Florence, Italy, 2004 and at the UBC Economic History Seminar. Any remaining errors are the authors’ responsibility.
page 1
Integration and Convergence of Wheat and Flour Markets in the mid-19th Century North Atlantic Economy Abstract: This paper examines the integration and price convergence of the North Atlantic wheat and flour markets during the mid-19th century. The main markets in London and New York show a high degree of integration with close links to peripheral Canadian markets in Toronto and Montreal. Market price convergence here includes the decade of the 1840s and the Canadian market. The price convergence in the international breadstuffs markets was due almost entirely to shifts in the trading partners’ commercial policies. The readjustment of the markets to price shocks varied by case, shorter during the Crimean War but longer at the end of the US Civil War.
This is a study of the North Atlantic market in wheat and flour in the mid-19th century and Canada’s place in it. As such, it is an outgrowth of a long-term study of macroeconomic instability in Canada between 1841 and 1871. This formative mid-19th century period in Canadian economic history is little studied perhaps because its economic activity has been little documented. Prices were a major vehicle through which macroeconomic fluctuations were transmitted to Canada. The recent compilation of comprehensive monthly price data for Canada with comparable data for relevant prices in Britain and the US was used to produce a new monthly Canadian wholesale price index for the years 1841-1871 and to analyze the 1
behaviour of aggregate price levels in the three economies in this period. It is now possible to explore relative price movements at a less aggregate level and to consider, from the perspective of prices, the integration of Canadian markets into North Atlantic ones. For this purpose, our initial focus is on prices of breadstuffs. These were major Canadian export products 2
and ones for which roughly comparable prices are available in all three national markets.
The first section of this paper reviews the concepts of market integration and price convergence and considers the relationship between them. We then review the main
1
Paterson and Shearer, “The History of Prices in Canada”.
2
Canada’s exports of wheat and flour, by value, amounted to as much as 40% of total exports
(1856) although the proportion did decline sharply in the late 1860s to 5.6% in 1871. Canada was also a major importer of wheat and flour some of which was re-exported. Canada for the period of this study is the Province of Canada, founded in 1841, with its parts Canada East (Quebec) and Canada West (Ontario).
page 2
characteristics of the data that we use in this study, with the more detailed discussion of each series in Appendix 1. In the third section we use the data to extend the discussion of price convergence in breadstuffs markets backwards to include the 1840s and geographically to include Canada. The fourth section is devoted to the analysis of instability in breadstuffs markets in the mid-nineteenth century using episodes of severe instability to explore integration in international wheat and flour markets at mid-century and the final section summarizes our conclusions.
MARKET INTEGRATION AND PRICE CONVERGENCE Market integration and price convergence are different but related concepts. We consider markets in a peripheral economy, such as Canada, to be integrated with those of a central economy, in this case Britain, if, because of actual or potential trade flows, prices in the peripheral economy cannot be set independently of prices in the central economy. The independence of prices, and hence market integration, is a matter of degree. Prices in the peripheral economy may be closely or loosely related to prices in the central economy. Analysis of the degree of integration involves a comparison of the changes of prices in the two economies over time. The speed and extent of adjustment of prices in the peripheral market to those in the central market reflect the degree of integration. Convergence of prices of similar products in different markets over time refines and accentuates market integration. However, there can be large and persistent international differentials in prices, whether a result of artificial (e.g. tariff related) or natural (distance and technology related) barriers to the flow of goods, and yet prices in the peripheral economy may be substantially determined by prices in the central economy. Although the barriers to trade provide a protected margin within which local market forces may determine prices, a strong external market for an export good will pull prices out of this margin and prices in the peripheral economy will adjust systematically to prices in the central economy. Although there is a low degree of price convergence there is a high degree of market integration and this is what is relevant for the international transmission of macroeconomic impulses. For price convergence goods have to move internationally, quickly and cheaply, as determined by transport technology, all inclusive transport costs (including insurance, handling charges at both ends of the transfer, and allowance for uninsured or uninsurable risks) and 3
customs duties and other administrative barriers to international trade. If such barriers are substantial, prices will be to some extent insulated from international pressures. For a high
3
Persson, “Mind the Gap”.
page 3
degree of market integration, information must move internationally, quickly and cheaply. By the 1840s the trans-Atlantic movement of bulk goods and the transmission of valuable information had been separated. Because of the small cargo capacity and relatively high operating cost of steam- ships, the bulk of low value goods like wheat and flour tended to be 4
shipped by sail, at relatively slow and undependable speeds. The transmission of information was still a physical process in the sense that a ship still had to cross the ocean, but that ship was propelled by steam and moved relatively rapidly. Indeed, until the successful laying of the Atlantic cable in 1866, the development of the ocean worthy steam ship was the most important fillip to trans-Atlantic market integration. Nonetheless, until 1866 there remained a substantial lag between changes of market prices in Britain and the receipt of the information in New York and its transmission to the interior North American grain markets. Market integration was present but far from perfect. There were two dimensions to the speed of transmission of information in the pre-Atlantic cable period. The first was the time required for a steam ship to cross the ocean. As time passed, steam technology improved and transit times for information shortened. Almost as important, however, was the frequency of departures of steamers from Europe, whether 5
England, France or Germany. In the early 1840s departures for New York were every two weeks, and once a month in winter. Information about events that happened soon after the departure of a steamer would thus have an additional delay: the familiar transit lag was augmented by the departure lag. By the late 1840s, as steamship companies put additional ships on the run and new shipping lines entered the business, not only was transit lag reduced but so to was the departure lag. In the early 1840s, for information to reach Montreal, Toronto or Chicago there was the additional lag of several days for overland express from Boston or New York. However, the overland telegraph reached many interior grain markets such as, Buffalo, Toledo and
4
However, as early as the mid 1840s some flour was shipped from New York to Liverpool by
steamer. Rather than taking on unremunerative ballast steamers carried cargos of flour when available. By the 1860s transport of flour by steamer was commonplace, although usually at higher freight rates than by sail. Sailing and shipping times were regularly reported in Hunt’s Merchants’ Magazine. 5
New York had important continental markets for breadstuffs. Moreover, cross channel
communication was rapid. By 1851 a telegraph cable had been laid between England and France. Some continental steamers called at Southampton, collecting not only cargo and passengers but also information.
page 4
Toronto in 1847and Montreal and Chicago in the following year. This eliminated this lag for valuable information. Price convergence carried with it important efficiency-based gains in welfare as a result of decreased transport and related costs. The gains were divided between consumers (lower prices) and producers (higher prices). Increased market integration also carried welfare gains for parties to the transactions but in large part they were distributional. In the absence of current information about the state of the British market, contracts for shipment of grains had to be based on speculation about future prices. As a result, at times market prices in peripheral markets could be spectacularly wrong. One party to the contract, the buyer or the seller, would incur substantial losses as a result of a contract made at prices based on false expectations. Faster communication of information reduced the likelihood of trading at such prices and reduced the unintended redistribution of gains and losses. Although this was largely a question of the division of gains between merchants in Britain and North America, there would be some absolute gains from a reduction of the risk premium (a true cost) required by merchants 6
engaged in international transactions. The latter point aside, the importance of the transAtlantic cable in breadstuffs markets was for market integration, not for price convergence.
THE DATA Detailed description of the data used here is in Appendix 1. In The data are mostly quotations of market prices for wheat and flour published in newspapers, the only sources available that cover several markets over the three decades under consideration. In most cases the quotations are for a particular variety of wheat (e.g., Upper Canada spring, Genesee, red or white) or grade of flour from a particular geographic location. Some, however, are not so identified but are for undifferentiated “wheat” or “flour”. The informational content of these data is impaired by some ambiguity about the product in question and uncertainty about the consistency of the series over time.
6
Despite the intense risks of price changes, we have found no evidence of active futures
markets in which these risks could be shared with price speculators. Contracts for future delivery of shipments coming down the river (Hudson or St. Lawrence) were common in New York and Montreal in the 1840s but we have found no evidence of such contracts for trans-Atlantic shipments. In any case these were contracts for specific shipments and the buyer anticipated taking delivery for milling, onward shipment or local consumption. We see no evidence of an open market in which such contracts could be traded by those with no specific interest in the breadstuffs per se, i.e., price speculators.
page 5
Newspaper quotations have inherent defects. It is not always clear what information is contained in the quotations. They were normally (but not invariably) presented as a range. In some cases when only one price was reported it was an actual transactions price. Thus, in its review of the breadstuffs markets the New York Tribune generally reported both the price and the quantity that changed hands at that price. In other cases the quotations appear to be bid and offer prices. When only one side of the market was present on a particular day (and no transactions occurred) only one price was reported. Thus, it was sometimes noted that flour was “held at” a specified price, in effect the supply price for an unconsummated transaction. In other cases the prices may represent a broker’s estimate of the range of prices at which transactions occurred during the day. It is also possible that they reflect prices of lots of a given type but of differing quality. Given the inherent ambiguities in the data it is not possible to use them to make fine calculations such as the profitability of shipments from North America to Britain. However, prices, whether high or low or for differing types of wheat and flour, tended to fluctuate together, although differentials were far from fixed and occasionally the relative position of a given type of wheat or flour in the market changed. However, the differences between prices in a given market at any time were small compared to differences between markets and compared to fluctuations in any given price over time. What is important is that the price series are generally representative of the market and reasonably consistent over time both within the series and in relation to other series. Most of the data are newly compiled but not all. It was not practical to calculate a monthly average price and we rejected the common practice of calculating an average of monthly high and low prices. Rather, we chose a price for a representative day each month. In this spirit, we attempted to obtain prices published on the third Thursday of each month (an arbitrary choice but one consistent with modern price gathering). Some newspapers did not publish on Thursday and in those that did relevant prices were not always reported on the third Thursday (or the published quotation could not be deciphered). In those cases we sought the 7
price for the next closest day. For a few months we could not find any suitable quotations. We have made linear interpolations over small gaps but left larger gaps. Whenever prices were reported as a range we chose the lowest price because it was the one most consistently reported. Often prices changed from day to day, usually by small amounts. However, when markets were disturbed and prices changing rapidly the choice of a day for observation could make a substantial difference. Another perplexing problem is that some series were not reported for the whole period. In these cases we linked together prices for what appeared from
7
There are some exceptions where we relied upon data from other sources. The New York flour
prices from 1841 to 1848 are for the first Wednesday of each month (see Appendix 1).
page 6
the price data to be products of comparable quality. Of course, any given series may be consistent only in name. The quality, as perceived by the market, may vary over time. Inevitably, there are also mechanical problem: errors in transcription and figures that cannot be read in the available microfilms. For these reasons, our data are very noisy. All prices are expressed in gold US dollars. British prices are converted to dollars at the 8
mint par rate of exchange, $4.867 = £1 stg. Given the narrow range of fluctuations of the market exchange rate, conversion at the market rate normally would be a refinement of marginal importance. However, we cannot rule out the possibility that it would be significant occasionally, a matter for future exploration. For the one major aberrant episode, the period of the greenback inflation in the United States, New York prices have been expressed in gold dollars. Canadian prices before the formal adoption of the dollar as the unit of account in 1858 have been converted to dollars at the rate $4 = £1 currency, the official unit of account. Finally, we should note that there are two levels of markets for which prices are quoted in the newspapers. What we are most interested in is the broad wholesale market that existed in the major ports in Britain and North America for either national and international collection or distribution of breadstuffs (and other farm products). There was another set of markets, however, for which prices were sometimes published: farmers’ markets that did both a retail and small scale, local wholesale business. The farmers’ market prices did not slavishly follow prices in the larger wholesale market. For various reasons, these farmers’ markets were partially sheltered and responded sluggishly to international price pressures.
United Kingdom. The standard index of wheat prices in Britain in the 19th century is the London Gazette price. We have chosen not to use the Gazette price because it was not a market price. Calculated weekly for the administration of the Corn Laws but continued long after their repeal, the Gazette price was a weighted average across all varieties and grades of 9
British grown wheat sold in hundreds of local markets in Britain. As is evident in Figure 1, the
8
Paterson and Shearer, “Canada and the US Greenback Inflation” .
9
The 1842 revision of the Corn Law listed 290 local markets from which transactions information
was to be compiled and reported as the basis for calculating each week’s average price [UK, 1842]. The average was calculated by summing the value of transactions in all markets and dividing by the quantity that changed hands. As a result, the prices in the large markets had an appropriately heavier weight in the weekly averages than did the prices in small markets. Nonetheless, it is a mélange of prices. Revisions were frequent as new data became available from outlying markets.
page 7
Gazette price was generally higher than the market prices that we have chosen to represent the prices of wheat in London. Kent - Essex wheat (sold in this combined form) was almost consistently the highest priced wheat in the Mark Lane market more than offsetting any slight bias in this comparison resulting from our use of the low price in the published price range. It should be noted that with the short-term exceptions the difference between the Gazette price and market prices was greater in the first half of the 1840s than later. This may have reflected improved integration in internal British markets as the transport and 10
communication networks were extended.
However, the abruptness of the change also
suggests that it might be related to the suspension and repeal of the Corn Laws. The bias from using the Gazette price for international comparisons is greater in the early years than later (although is not trivial in the late 1850s, for example). What is of equal significance, as is illustrated in Table 1, is that the Gazette price was much more variable than market prices and as a result the relationship between the Gazette price and market prices was not stable over time. The table shows the mean and standard deviation (among other descriptive statistics) of the differential between the British Gazette price and London market prices of two types of 11
wheat over the whole period and for each of the three decades.
The mean difference
between the Gazette price and either of the two market prices was consistently and substantially greater than the difference between the two market prices. While invaluable for describing the trends in the British market the Gazette price is not the appropriate base for the calculation of international price differentials. For that we require the actual British market prices for representative grades of wheat and flour. We have chosen Kent - Essex white wheat and “town best” flour to represent the London market. (Figure 1: insert here). (Table 1: insert here)
United States. In the United States, New York was the major port for the export of breadstuffs and was the distribution point for the Atlantic regions and parts of the south. New York received wheat and flour from many diverse sources. Most came through the canal system and the Hudson River from the north (Genesee County) and the west (Ohio, Michigan, Illinois,
10
Nason and Paterson, “Bulk Commodities and the Liverpool and London Markets” claims that,
by 1850, the Liverpool and London markets were essentially one market in a range of commodities including wheat and flour, adjusted for transaction costs. 11
For this purpose we have introduced another widely reported British wheat price, that of
Norfolk and Suffolk wheat.
page 8
and the old Northwest) and, particularly in the 1850s and early 1860s, from Canada. There was 12
also a substantial flow from the south (e.g., Missouri, Kentucky, and North Carolina).
The prices
that were most consistently quoted in the New York market until the mid 1860s are those of Genesee wheat and Genesee flour. Both were of the highest quality, almost consistently achieving the highest prices in the market. We have chosen them as representative of the New York market. In the 1860s the frequency of quotation of prices for Genesee wheat declined, replaced by other white wheat from Michigan, Ohio, Canada and eventually California. Their prices were generally equivalent. From 1856 our price series is for Michigan White with occasional observations from one of the other white wheat prices to fill small gaps. The flour series similarly is not continuous. From 1841-1849 it is the price of “pure Genesee,” at the time the most consistently quoted price. Subsequently we use the price of Extra Genesee, the top quality in the market. As with other products, there was a range of qualities within the Genesee and 13
Michigan varieties.
Canada. The Canadian prices are those for Montreal and Toronto. For Montreal the prices are from the wholesale market for which tabular presentations occurred with reasonable regularity in the local press as “Prices Current” or “Produce Prices.”
14
Price information from
Montreal presents the problem in that, in the pre-railway years, given the ice-bound nature of the port wholesale, wholesale market activity was much reduced. It was not, however, eliminated. The Montreal series have frequent gaps in the winter months until 1850. For Montreal there is a fairly consistent definition of wheat and flour throughout the period. Wheat is the ‘Upper Canadian Spring’ and the flour is ‘Canada Extra Superfine’. For Toronto, reporting was such that we could construct continuous series. Before1850 wheat refers to an undifferentiated wheat and thereafter as ‘Fall’ or ‘Red Winter’ wheat. Flour was reported as ‘Millers’ to about 1850, subsequently as ‘Millers/Superfine’ and after 1857 ‘Superfine #1’.
12
Berry, Western Prices ; Clark, The Grain Trade ; Fornari, Bread Upon the Waters; Rothstein,
“Antebellum Wheat and Cotton Exports” ; Buffalo Chamber of Commerce, Annual Reports; Milwaukee Chamber of Commerce, Annual Report . 13
We sought prices for the prime quality in each case but we cannot be sure that all of the
prices recorded, but not fully described in the sources, are for grain or flour of lesser grade. 14
The other prices reported regularly in the newspaper were for the local farmers’ markets. For
various reasons, these markets were partially sheltered and responded sluggishly to international price pressures. For this reason we have not used prices in local farmers’ markets in our analysis.
page 9
EXTENDING THE RECORD ON CONVERGENCE Of the modern literature on convergence of breadstuffs prices Harley’s work is broadest in scope; it shows how the North American wheat frontier pushed westward in the second half of the 19th century even when there was a secular decline in nominal wheat prices in the main markets. Declines in the British Gazette price of wheat were accompanied by falling land and sea transport charges, including the effects of new canal and railway expansion; the price of 15
wheat at interior North American markets rose. The convergence was not smooth but was subject to strong cyclical disturbances.
16
[We consider some of these disturbances in the next
section]. Harley’s research generally shows that while evident earlier most of the convergence occurred after 1880 well beyond the period considered here. We extend the record on price convergence in breadstuffs markets in the mid-19th century in three ways. First, the evidence is extended to include the 1840s. Second, we make a geographic extension, including prices from Canada. Third, by employing monthly data it is possible to explore various shorter term 17
characteristics of the convergence process.
18
Adding the 1840s. Price convergence is a long-term process and the major results for breadstuffs markets are well known. What does the inclusion of the 1840s add to the story? Figure 2 presents flour and wheat prices in London and New York 1841-1871. The first two panels show the market prices, in gold dollars, and the lower panel the corresponding price differentials between the two markets (expressed as a percentage of the London price to facilitate comparisons of the wheat and flour series). The projection of trends in historical data can be very sensitive to starting and ending points, particularly if the trends are gentle and the data have wide short-term variability and are subject to significant errors of measurement. With these caveats in mind, Figure 2 suggests that over the whole period, 1841-1871, London and New York flour and wheat (from April 1844) prices show no strong trend, downward or upward. The troughs that occur early in the series are at about the same level as those that occur later and essentially the same is true of the successive peaks (with the exception of the late peak in wheat
15
Harley, “Transportation”. Also see: Harley, The Integration of the World Economy.
16
The convergence literature is summarized in: O”Rourke and Williamson, Globilization and and
History; O'Rourke, Taylor, and Williamson, “Factor Price Convergence”; and Taylor, “Sources of Convergence”. 17
18
For the post-1871 history of British markets see: O’Rourke, “The European Grain Invasion”. Paterson and Shearer, “Wheat, Railways and Cycles”.
page 10
prices in New York which will be considered below). However, careful examination of the flour series and particularly of the London - New York price differentials reported in the third panel tells a different story. Although the flat trend is apparent from the late 1840s or early 1850s, there is a clear step down from the level of the first half of the 1840s to the 1850s. Moreover, the variance of the data in the early 1840s is much smaller than later. (Figure 2: insert here) We attribute the lower variance of prices in the mid-1840s to the working of the Corn Law mechanism and the apparent step down of prices at the end of the 1840s to the law’s 1846 suspension and subsequent repeal. The Corn Laws put a variable tariff between the London and New York markets for breadstuffs and in some degree tended to stabilize the prices of wheat and flour in Britain. As the British price of wheat fell, the import duty on breadstuffs from non-British sources increased sharply according to a legally prescribed formula (breadstuffs from British colonial sources were subject to a lower schedule of rates). Thus, the fall of the price in Britain was somewhat cushioned by the raising of the tariff. When the price of wheat increased, the import duty fell until at a very high price it became essentially nominal. The increase in the market price was somewhat constrained by the lowering of the tariff until the tariff became 19
nominal.
At this point broad market forces were unleashed and the price could go very high
(as was illustrated in the mid 1830s). At low wheat prices in London, the Corn Law duties made direct importation of wheat and flour from New York almost prohibitive. Williamson (1990) makes this point about the wedge created between British and Baltic prices of breadstuff imports. However, the New York market was not cut off from the British market. Under the British Canada Corn Act of 1842 American wheat could enter Britain at the nominal duties applicable to colonial produce providing it was processed into flour in Canada and subsequently shipped from there, typically from Montreal. This established an indirect link between the American market and the British market, but a link that was more expensive than a direct link would have been. Relative transport costs on the St. Lawrence versus the Erie Canal route to salt water depended on the location of the wheat, but there was a small duty to be paid on American wheat entering Canada and ocean freight and insurance rates from Montreal were generally higher than those from New York. Because of this indirect link, it is not surprising that the New York prices of wheat and flour more or less paralleled the British prices, but because the link was imperfect New York prices remained at a considerably lower level. The markets were, to a significant degree, integrated - but prices had not yet begun to converge.
19
United Kingdom, “An Act to Amend the Laws for the Importation of Corn” ; Williamson, “The
Impact of the Corn Laws”.
page 11
From the perspective of the rest of the period to 1871, the closing years of the Corn Laws showed remarkable stability in breadstuffs prices. However, in 1845-46 the forces on prices were so strong that the Corn Law customs duties became irrelevant. The London market was exposed to full market pressures and a free trade government took the opportunity to suspend and then repeal the Corn Laws. This shows up strongly in the price differentials shown in Figure 2. They step down sharply, a movement to convergence resulting from the removal of administrative and tax barriers at the border of the major market. Table 2 confirms that this closing price differential did not come about by London prices declining. Tests for the equality of price means for the five years before and after the abolition cannot reject the null hypothesis of mean equality for London prices (or for Toronto wheat prices, the Toronto market being within the broadly defined scope of the Corn Laws). Notably, the Gazette price of wheat (probably the one used by contemporary policy-makers) was aberrant and statistically lower in the postabolition period. Again this suggests the misleading nature of this non-market price series. With the decline in the price differentials and the relative stability of the London prices, the abolition had the effect of raising prices in peripheral markets outside the Corn Law framework. Confirmation of this is also seen in Table 2 with the rise in New York wheat prices – although statistically significant the result is based on an incomplete price series for the pre-abolition years. As noted above, the Corn Laws were designed to reduce price variance. Not surprisingly, after their removal the wheat price variance in the London market was greater. The null hypothesis of 20
equal variance before and after the abolition is rejected. In this discussion we have emphasized the effects of the repeal of the Corn Laws on the London - New York axis, but it was an action that had much broader ramifications in world breadstuffs markets. (Table 2: insert here) (Figures 3 & 4: insert here) Adding Canada. There were three developments in Canada - US arrangements that affected the flow of breadstuffs and merit attention: the United States drawback duties of 1846; the Reciprocity Treaty between the United States and Canada that came into effect in 1855 and permitted free trade in agricultural and natural resource products, and its abrogation, by 21
the US, in 1866.
20
Figure 3 shows the prices of wheat and flour in New York, Toronto and Montreal
We note that these results are not a direct test of whether in the absence of the abolition
prices would have been the same as observed historically. 21
Ankli, Robert E., “The Reciprocity Treaty of 1854” ; Officer and Smith, “The Canadian-American
Reciprocity Treaty”.
page 12
for the 1840s. Figure 4 shows price differentials between New York and Toronto for wheat and flour for the entire mid-century period (further evidence on these markets is presented later). The drawback legislation permitted Canadian products to pass through the United States, in bond for export, without paying the US import duties that had previously been imposed. Even after the completion of the railway, the low cost route for bulky products like flour and especially wheat was the Erie Canal - Hudson River system to New York. Given the significant diversion of exports from parts of Canada to this route it must have provided some cost advantage. The effect should have been to increase the price of wheat at Toronto relative to New York. That there would have been the same effect at Montreal is questionable. Toronto was across the lake from Oswego, an entry point to the Erie Canal system. From Montreal, products had to be hauled up the Richelieu River before access to the canal system, with a much longer passage to New York. In any case, Montreal was not the center of a section of the country that produced large quantities of wheat for export; it was an entrepôt. Although there is a slight hint of the drawback effect on Toronto prices in Figure 3, it not strong. Whatever effect there was from the drawback duties must have been small and, in any case, is disguised by the noise in the data. The same is not true of the effects of the Canada – US reciprocal free trade treaty. 22
Toronto may be regarded as another interior center of the North American grain trade like Buffalo and Chicago except it was separated from New York by an international boundary and the international trade policies of Britain, Canada and the United States. The significance of the Reciprocity Treaty is that it effectively removed all barriers to trade in wheat and flour between the two countries and most importantly the US tariff which at the time stood at 20 per 23
cent. A large one-time shift of the New York – Toronto price differential in 1855 is evident in Figure 4 when Canadian wheat gained free access to the New York market. Although the price differential with New York remained highly variable it was a lower for the period of the treaty. The dip in the years 1869 - 1871 is puzzling. We have no explanation.
22
In practise, many small ports along the northern shores of Lake Erie and Lake Ontario shipped
directly to the Erie Canal at Buffalo and Oswego respectively. According to McCalla, “The Internal Economy”, pp. 397-416, by the 1850s at least the regional markets of Ontario were wellintegrated and that Toronto was the price setting market. Also see: McCalla, “The Commercial Policies of the Toronto Board of Trade 1850-1860”. 23
United States, United States Statutes at Large, 1859, Schedule E. The tariff was lowered in 1857
to 15% ad valorem although because of the Reciprocity Agreement it was not applicable to imports from Canada until 1866.
page 13
The Montreal wheat price differential with New York followed that of Toronto. This is not surprising since the Montreal prices too now reflected the possible tariff-free sale of wheat in New York. Whereas, the earlier US drawbacks simply lowered transport costs en route to Britain, the 1855 treaty realigned Canadian markets. Before the treaty Canadian prices were established in Montreal based on expected prices and transport costs to London. Toronto prices were then based on Montreal. Under the treaty, it seems likely that Toronto prices were based on New York and Montreal prices may have been derived from Toronto, although the Montreal trade with London continued on a diminished scale. In Table 2 is statistical evidence of the rise in Canadian prices with no change in the New York price of wheat. The null hypothesis of equal price means is rejected for both Toronto and Montreal but not for New York. Toronto wheat prices rose against New York closing the differential by, on average, thirty cents per bushel. It is also interesting to note that the flour price differential between New York and Montreal closed substantially more than the New York – Toronto one. Both Montreal and Toronto were linked to the US rail network although there might have been different transport costs. Another possible explanation is, of course, that the flour types were sufficiently different in Toronto and Montreal that they were not competing substitutes in the New York market. The welfare gains from the price convergence the between Canada’s markets and New York largely accrued to the Canadians. This is not perhaps surprising as small markets, when trade increases with larger markets, will move further towards the terms of trade of the larger economy than vice versa – the importance of being unimportant.
INSTABILITY That mid-nineteenth century international breadstuffs markets experienced severe instability is well known. Thus, F. W. Burton in a well-known essay on Canadian agriculture describes the mid-19th century as a period of major re-alignment in the wheat and flour trade 24
brought about by “institutional changes” and “the inherent instability of the wheat trade”.
Similarly, although he focused on long run convergence, the severity of market instability is evident in Harley (1980). Repeated severe shocks to the international trading system had direct consequences for macroeconomic stability throughout the North Atlantic economy. Investigation of these episodes also casts light on international market integration in this period, including major barriers to integration.
24
Burton, “Wheat”, p.216.
page 14
The Irish Famine Period. The first major crisis in the breadstuffs market of the mid-century period was associated with the Irish famine, a poor European wheat crop and the suspension of the Corn Laws.
25
It lasted approximately twenty four months from mid-1845 to mid-1847 (Figure
5). Breadstuffs prices had two distinct peaks. The first followed the revelation of the potato crop failure in the summer of 1845. In November, London prices of Kent-Essex wheat and town made flour reached peaks almost 40% (wheat) and 20% (flour) higher than in May. Prices then subsided but the episode provided an excuse for the free trade government to suspend the Corn Laws. In the following year, following a short harvest of grain in Europe, the climactic run up of prices began in the autumn. There was a pause in the spring of 1847 when wheat had reached a level about 70% higher than in May 1845 and flour about 43% higher. The upsurge renewed immediately. By May 1847 wheat had reached the equivalent of $3.04 a bushel and flour $12.78 a barrel, 125% (wheat) and 78% (flour) above May 1845 levels and about twice the long-run averages for wheat and flour in the mid-19th century period. The price spike collapsed quickly. By August, 1847, the price of wheat was under $1.90 and flour about $8.50. As the North Atlantic economies settled into a serious depression, the downward movement of breadstuffs prices continued with a minor interruption in mid-1848; by mid-1849 prices were well below the levels of early 1845. (Figures 5 & 6: insert here) The international transmission of the price fluctuations of the 1840s is illustrated in Figure 6 which shows prices of wheat (top panel) and flour (bottom panel) in London, New York, Toronto and Montreal. As is apparent, at the turning points of the two major price spikes, prices in North American centers reacted to prices in London with perhaps a month lag. The dating of the peaks, and hence of the lags, must be treated with caution, of course as the data cannot identify lags of less than a month or between one and two months and the dating of the turning points can be highly sensitive to the day chosen for observation. The problem is particularly acute for the centers of the interior trade in 1845, before the arrival of the overland telegraph. Because the lag in transmission from New York would have been a matter of days, well within the one month interval reported here, the apparent simultaneity of turning points in these 26
centers with that in New York is a product of the data.
A second point is that although prices in the peripheries reacted quickly and strongly to the major turning points at the center, the same did not happen in minor fluctuations. Once again, we have to warn about spurious fluctuations arising from noise in the data. However, it
25
26
O’Rourke, Kevin, “The Repeal of the Corn Laws and Irish Emigration”. McKee, "Canada's Bid for the Traffic of the Middle-West".
page 15
seems apparent that although there was widespread agreement with the broader movements of London prices, detailed fluctuations were often not imitated. The costs of international shipments were sufficient to permit local supply and demand forces to predominate. This is a pattern that is repeated in later sub-periods. There is one final observation about the data that applies to both 1845-49 and later episodes. Although we cannot be certain that the qualities of wheat and flour for which prices are reported are the same for all four cities, the differences of prices among cities are much greater than differences among major varieties trading in those cities. Given this, there is a clear hierarchy of prices with the expected characteristics. Prices in the two seaboard cities, New York and Montreal, are the highest, with the relationship between them varying over time. Prices in the interior city, a distribution center for local wheat growing 27
regions, are lower.
The Great Victorian Boom and the Crimean War. The second major episode of instability in international breadstuffs markets occurred in the mid 1850s and had some unusual features. Despite economic booms in both the United Kingdom and North America in the early 1850s, wheat and flour prices and the price differentials between London and New York remained relatively stable through the summer of 1853 (Figure 7). However, beginning in the late summer both international breadstuffs and ocean shipping markets were seriously disturbed, initially by Russo-Turkish belligerence and in February 1854 by the declaration of war between the FrancoBritish alliance and Russia. As is evident in Table 3, Russia was a major supplier of grain to pre-war Britain. At first the threat of and then the actual cessation of the flow of Russian grain to Britain precipitated a sharp rise of British wheat and flour prices. The New York price of wheat responded quickly (the flour price more slowly) and prices in other North American centers followed (Figure 7). The situation with freight rates was more complex (Figure 8). Freight rates between New York and Liverpool had increased somewhat in late 1852 and early 1853, perhaps reflecting a general increase in the demand for shipping in the economic boom. The war induced a further sharp jump as shipping was redirected to the transport of military and supplies to the Crimea and the differential between London and New York prices for wheat and flour correspondingly widened. The extreme freight rates did not last. Although wheat and flour prices remained high,
27
We have considered, but not used, a well-known set of data for the price of wheat in
Chicago. The data are averages of monthly high and low prices and so are not compatible with those that we have compiled for the other cities. The averaging process reduces the variance of the series and may shift turning points. However, as expected, these data suggest that Chicago wheat prices were lower than those for Toronto.
page 16
by late 1854 freight rates had reverted to their pre-war levels where they remained until the fall of 1855 when they again surged upward. (Table 3: insert here) As the war continued British prices for wheat and flour stabilized but New York prices continued to rise, followed with a short lag by those in other North American cities (Figure 7). Clearly, something other then normal international arbitrage was at work modifying the link between London and North America. Although we lack production data for these years, it was reported that harvests were poor in North America in 1854 and 1855 (perhaps with the exception of Canada in 1855). Although Britain also had poor harvests, the US crop failure in 1854 was 28
profound and largely unanticipated.
The short supply in North America was sufficient to force
continuing increases in prices. Indeed, for the products whose prices are noted here, the flour price in New York touched and occasionally exceeded, and the wheat price went well above that in London for fifteen months from June 1854 to August 1855.
29
This should have induced a
reverse flow of grain to equalize the prices. That this did not occur shows that the market integration was, in a sense, one sided. The American tariff added to all of the other costs of shipping wheat and flour across the Atlantic prevented the re-establishment of normal price differentials. The US tariff on imported wheat and flour, at this time, stood at 20 per cent. Such an inversion of the normal price relationship between London and New prices had occurred earlier in moderate degree and for brief periods but this inversion was unprecedented in its magnitude and duration. The conditions for the inversion were gone by early 1856 and the differential swung in favour of London. One of the features observed in many general indicators of macroeconomic activity of this mid-Victorian boom-war period of 1852 – 1856 is the triple peaked nature of the cycle at its
28
Receipts of wheat at the major US inland receiving points of Toledo, Buffalo, and Oswego in
1854 were well below average. The figures, in thousands of bushels, for the three trans-shipment points in 1854, with the average of the previous three years in brackets, are: 397.0 (1,634.5); 3,510.8 (5,045.6); and 2,492.3 (6,063.5) respectively, Buffalo and Toledo Chambers of Commerce, various years. 29
It is also reported that many US grain brokers temporarily became the agents of European
governments making special purchases. The financial and brokerage house of Baring Brothers, with offices in the US, secretly made purchases of over four million bushels of wheat for Napoleon III in 1855 in order to build up French wheat stocks. While it is difficult to understand why such purchases occurred in New York rather than London, if they occurred they would have aggravated the pressures on New York prices. Rothstein, American Wheat, p.32.
page 17
height. This is evident in the Klovland-Saurbeck (UK), the Warren-Pearson (USA) and Paterson30
Shearer (Canada) monthly price indices. For Canada, it is also present in monthly macroeconomic indicators such as the money supply, a reminder of how acute these wheat and flour price movements were to a small open economy.
The Financial Crisis of 1857. According to contemporary accounts the financial crisis of 1857 had a profound effect on the grain trade. The crisis was precipitated, in New York, by the suspension of the Ohio Trust Co. which had overextended in speculative railroad securities. The suspension set off a chain reaction not only among the New York banks but also in other banking centers and from mid-October to mid-December the suspension was general. In Canada, while there was a severe restriction of credit, there was no suspension. Financial paralysis severely restricted the movement of grain crops to markets.
31
The financial restriction was accompanied by a sharp drop in grain prices. A brief inversion of the price differentials with London in favour of New York that had emerged in late summer was restored by late November to its normal posture. During the crisis, but for other reasons to do with the British harvest, wheat and flour prices in London also fell but fell less than in New York. One of the much commented on features of the financial crisis of 1857 was the rapidity 32
with which it spread.
Apart from the Atlantic gap, telegraph linked all important British and
North American markets. From the perspective of the markets in wheat and flour the crisis was not long-lived. Given the nature of the data presented here, it barely registers as a blip as the markets continued their slide into the depression of the late 1850s. The US Civil War. From the perspective of grain and flour market the US Civil War had two distinct phases: the war period itself and its immediate aftermath. In 1860 the British prices of flour and wheat rose, after a succession of declining British harvests, a differential in the flour price between London and New York began sucking record level imports into Britain – see Figure 9. By the harvest New York flour prices also rose although the differential itself also continued to increase. Freight rates, displaying their usual short term variability, were low relative to the mid1850s. That is, the growing gap between London and New York by 1860 was not initially a
30
Klovland, “Zooming in on Sauerbeck” ; Paterson and Shearer, “The History of Prices” ; and
Warren and Pearson, Prices. 31
Paterson and Shearer, “The Tael of Two Cities”.
page 18
product of the freight charges. Freight rates on both flour and wheat rose dramatically during the shipping season of 1860, presumably as a result of the increased demand for shipping, but by the spring of 1861 they had reverted to the lower levels in the neighbourhood of about 50 cents per barrel in the case of flour. The War Years. The closing of the port of New Orleans by the outbreak of war in the US in May, 1861 shifted the North American grain and flour flow northward in the search for other routes to the British market. Montreal which typically handled about 8% of aggregate North American grain and flour shipment to the United Kingdom accounted for as much as 14% in the 33
early war years relieving pressure on the over-burdened Erie Canal route and New York market. There may also have been a preference for shipping in British vessels given that Confederate raiders were active in the North Atlantic, and of course much of the New York to Liverpool/London trade was normally carried in British ships. We cannot separate out the effect of the ‘war-risk’ from the effects of the increased demand for shipping services as British imports of North American grain and flour reached their peaks for the entire mid-century period. Apart from direct freight rates, insurance and other risk-related charges also likely increased. Yet, the markets continued to arbitrage in what seems like a straight-forward manner. Even the abandonment of the gold standard, by the US Treasury Greenback issue of January 1862, appears to have been absorbed without any particular shock to the functioning 34
of the grain and flour markets despite the sharply increased exchange risk. For the last two years of the conflict, through the harvest of 1864, the wheat and flour price differentials between New York and London narrowed and freight rates fell to pre-war levels. (Figure 9: insert here)
32
Calomiris and Schweikart,“The Panic of 1857” .
33
Montreal Board of Trade, Annual Reports, Various Dates
34
A curious feature of the New York market in ocean freights was that rates were reported in
sterling rather than dollars regardless of the nationality of the ship. This convention probably had its roots the historical dominance of British shipping in the trans-Atlantic shipping trade. It is reminiscent of the anomalous method of quoting exchange rates as a premium over the official 1834 exchange rate, in both cases reflecting the persistence of dysfunctional institutions. We do not know which currency was actually used in transactions, particularly with American ships but the method of quoting the rates had no implications for the exchange risk involved, only who made the currency conversion and who bore the risk.
page 19
The Aftermath. The North Atlantic wheat and flour price movements in the aftermath of the US Civil War were among the most aberrant, and interesting, of the entire mid-19th century period. As during the Crimean War the normal price relationship with London was inverted but in this instance the price spread was much greater and the inversion lasted much longer. This disturbance last for about forty months from the winter of 1865 to the spring of 1868. The inversion, and its persistence, should have induced arbitrage shipments of wheat and flour to North America from Britain. While some such shipments are mentioned in the Economist, without quantitative details, they were not sufficient to attract widespread attention or to correct the anomalous price relationship. They may have involved specialty products for specialty 35
markets.
Inhibiting large scale east to west arbitrage was the 15% US tariff. Some west to east
shipments continued but by the main harvest shipping season (1st September to mid-November) of 1866 exports of wheat from New York and Philadelphia to Britain had fallen to a trickle – see 36
Table 4. In Europe a series of poor harvests brought about rising prices. The year 1866 saw particularly major crop failures in both Britain and France. North American prices, however, increased at an even faster rate. (Table 4: insert here) The origins of this North American price spike were mostly related to the chaos of Southern agriculture in the last year of the war and its readjustment in the immediate aftermath. In the autumn of 1864 and the following spring in many of those areas where the war had waged, no crops, of any type, were planted. Second, the adjustment to the new ‘labor system’ introduced further uncertainty. Third, it is reported that in anticipation of the end of war and the opening up of trade, there was wide-spread, speculative planting of cotton, taking acreage out 37
of wheat production.
By mid-winter and the spring of 1866 in some Southern districts/counties
there was a general food crisis and famine reported. In Pickens District, South Carolina, for 38
instance, the clergy appealed for the release corn from military stocks to alleviate suffering. The general increase of the wheat price of course had the effect of re-directing shipments from the 39
North and Northwest and creating an export boom in Canada:
35
“In the early part of 1866, wheat was exported from this country [United Kingdom] to America
and Australia”. (published emphasis), ‘Commercial History and Review of 1866’, The Economist, 9 March, 1867. 36 37
Lawes and Gilbert, "On The Home Produce, Imports, Consumption, And Price Of Wheat” New York Times, 27 July, 1865.
38
New York Times, 2 June, 1866.
39
In Montreal at the same time, “grain millers closed down for want of sufficient good quality
grain. Shipments to Britain seldom took place” [Montreal Herald, 24 Jan. 1868].
page 20
Probably the most remarkable general feature of the trade of the year [1865] is the almost entire diversion of the current of our exports from the old channels to new ones… the empty storehouses … of the Southern States had to be filled and replenished. Toronto Board of Trade, 1865, p. 10.
(Table 5: insert here) The Southern agricultural crisis continued into the following planting-harvest cycle and, as seen in Table 5, was exacerbated by the generally poor harvests of 1866 in areas such as Michigan, Ohio and the eastern states. The harvest was both below expected quantity and apparently judged to be of generally poor quality.
40
Nor did the situation improve in the spring
of 1867. It is not without reason that flour and grain rule at such extraordinary prices. … there will be no doubt in any quarter that the short supply of wheat and corn in the South has caused an immense demand from that section, resulting in a heavy draft upon the supplies at all points. Hunt’s Merchant’s Magazine, May 1867, p. 363. 41
The high prices were of course inducing increased wheat planting in the South.
Within a month
of the May 1867 peak prices, with reports about harvest prospects, North American prices sharply declined. British prices continued to rise. It was not until the harvests of 1868 that the price differential was restored in favour of London in the case of wheat. That the flour price differential, is reversed earlier suggests an incomplete arbitrage between flour and wheat – which may have resulted from the qualities of grain available. As seen in Figure 10 the Canadian flour prices tracked the New York prices very closely. During the war, and particularly in its later years, the unusual war-related costs and exchange rate risks do not appear to have had an adverse effect on the functioning of international breadstuffs markets. However, in the aftermath of the war, war-derived demand and supply conditions in the United States resulted in a separation of markets, despite falling freight charges and other related costs. The separation appears to have been a direct consequence of the US tariff. In 1866 and to June 1867, North American market prices were bid up almost eliminating the North American exports of wheat and greatly reducing those of flour.
40
“With reference to the crop of 1866, there is now no doubt as to the unsound quality of the
wheat now held…”, Montreal Herald, 25 Jan. 1867. 41
Hunt’s Merchant’s Magazine, May, 1867, p. 364.
page 21
As soon as the price differential in favour of Britain was re-established and exceeded the shipping and other transaction cost threshold, exports of breadstuffs responded.
42
(Figure 10: insert here)
CONCLUSIONS The convergence of wheat and flour prices in international breadstuffs markets in the period 1841–1871 was due almost entirely to shifts in the trading partners’ commercial policies. Between London and New York the rapid convergence in the 1840s was brought about by the end of Britain’s Corn Law trade regime. Thereafter, such convergence as occurred was very gentle, although interpretation of trends is complicated by the noise in the data. Similarly, a major shift in the commercial relations between Canada and the United States in 1855 brought prices in Montreal and Toronto grain markets closer to New York ones. Interpretation of the US Drawback legislation of 1846 is also confounded by the noisy data, but contrary to expectations, the effects on price differentials of permitting duty free trans-shipment of Canadian wheat and flour through New York to Britain were at best moderate. Price convergence was also impeded by the US tariff regime. When markets on either side of the Atlantic, responding to local supply and demand conditions, inverted the trans-Atlantic wheat and flour prices differentials in favour of New York there was no obvious arbitrage response. As a consequence, some key shocks of this period gave rise to a virtual separation of markets as indicated by a long inversion of the London – New York price gap. This was especially the case during the Crimean War period and during the chaotic aftermath of the US Civil War. Our general conclusion is that despite repeated, severe shocks, international breadstuffs markets functioned well in this period, generally producing expected results. Rapid rises in the transport charges from New York to Liverpool brought about by changes in the amount of shipping available (the Crimean War) or by perceived increased shipping risk (US Civil War) gave rise to changing price differentials between London and New York but did not force a separation of markets. However, we also conclude that administrative arrangements at
42
In the winter months it was not unusual for the London - New York price gap to invert. The
inversion was then typically righted with the more active trans-Atlantic trading that took place from mid-summer to the end of the harvest / shipping year. This tendency is more noticeable in wheat than in flour prices. Indeed, one of the puzzles for future research is the fairly loose integration of wheat and flour markets.
page 22
international borders mattered, indeed, they mattered a great deal both for price convergence and for market integration.
page 23
Appendix 1. Data Wheat and Four Price Series All price data in this study are presented in Gold $US converted as Gold $US 4.867 = £1 sterling. Canadian prices before the formal adoption of the dollar as the unit of account in 1858 have been converted to dollars at the rate gold $US 4 = £1 currency, the latter being the official currency. After 1858 the Canadian and US dollars were at par until the US issue of Greenbacks in Jan. 1862. All data are monthly. Quantities have all been converted to bushels (60 lbs.) in the case of wheat and barrels / 43
sacks of 196 lbs. in the case of flour.
44
London:
Sources: The Economist, The Times, Mark Lane Express and Agricultural Journal. London Gazette Price of Wheat: Monthly, Jan. 1841 - Aug. 1845 from the London Gazette and from Sept. 1845 - Dec. 1871 and from Sept. 1845 to Dec. 1871 from The Economist. “The London Gazette quoted average daily prices for the last week in the month. Last week considered up to and including the third of the following month." Source: From Sept. 1845 reported electronically by the National Bureau of Economic Research. It is reported in shillings per Imperial Quarter of 480 lbs. London Price of Wheat: Monthly, Jan. 1841 - Dec. 187. This is Kent - Essex white wheat which was normally the highest priced wheat in the London market. It is reported in shillings per bushel. London Price of Flour: Monthly, Jan. 1841 - Dec. 1871. London flour "fine flour" and later "town-made best" reported in shillings per sack of 280lbs. New York: Sources: All data are from The New York Daily Times, The New York Tribune and The New York Journal of Commerce with the first being the principal source. Both newspapers report the
43
More, “Sale of Corn by Weight”.
44
Capper, The Port and Trade of London; Passingham, London’s Markets.
page 24
same basic information about sales in the New York market although the new York Times was usually more detailed and somewhat broader in its coverage. Both Canadian wheat and flour prices are largely taken from The New York Tribune but supplemented by information from The New York Times. The British Colonist (Toronto) newspaper in 1848 printed a retrospective table of Genesee Flour monthly prices in New York. Canadian flour and wheat are quoted 'in bond' until Jan. 1855 - although this is often missing from the descriptions in the reporting newspapers. After Jan. 1867 it is also 'in bond' although this is usually not noted. BNA wheat was permitted, by US drawback legislation of 1846, to move through the US to US ports without attracting the US tariff if subsequently exported. 'In bond' prices were relevant for exporters. If purchased for US domestic consumption the US tariff was required to be paid. For the years 1855 – March, 1866 inclusive the Elgin-Marcy Treaty between the US and Canada was in place guaranteeing tariff-free trade in agricultural and natural resource products. New York Price of Wheat: Monthly, Apr. 1846 - Dec. 1871. This series is the New York price of Genesee wheat from The New York Journal of Commerce to 1850 and The New York Tribune thereafter. There are a few irregularly reported observations prior to April 1846. Regular reporting of Genesee ceased after June 1855 although, again, there are a few post-1855 observations. The series is continued with the price of White Michigan and when that was not available (very few cases) the price of White Western is used. The various overlaps suggest that these were all close substitutes. It is reported in nominal $US per bushel. New York Price of Flour: Monthly, Jan. 1841 - Dec. 1871. Extra Genesee Flour (May 1841 to Dec. 1871) was a high quality local (NY state) flour: few other flours regularly trade at prices above Extra Genesee. This flour is reported as 'Genesee flour' prior to Mar. 1850 (occasionally noted as 'fine') and as 'Extra Genesee flour' thereafter. There is also a switch in the sources used at this breakpoint. It is reported in nominal $US per barrel of 196 lbs. 45
Toronto:
Sources: The Globe, The Patriot and the British Colonist.
45
Michell provides several incomplete wheat and flour price series for this period but they are
not wholly compatible with the data presented here. Michel, “Notes on Prices of Agricultural Commodities in the United States and Canada”.
page 25
Toronto Price of Wheat: Monthly, Jan. 1841 - Dec. 1871. Until 1854 the wheat prices reported were undifferentiated. It then was specified as ‘fall wheat’. It is reported in shillings (Canadian currency) and thereafter in $Can. per bushel. Toronto Price of Flour: Monthly, Jan. 1841 - Dec. 1871. These are the wholesale prices of ‘Millers'’ flour at Toronto. This description disappears in 1851 completely and subsequent reporting is 'Millers'/Superfine'. This entry is then replaced in the reporting by 'Superfine'. In 1862 Superfine is then reported as #1 and #2. This series continues with Superfine #1. It is reported in shillings (Canadian currency) and thereafter in $Can. per barrel of 196 lbs. Montreal: Sources: Montreal wholesale wheat and flour prices prior to 1867 are taken primarily from the Montreal Gazette published in a section usually described as "Wholesale Prices Current". Occasionally there were annual reviews (1861 and 1863) of monthly prices. Prices were also quoted in other Montreal newspapers on an irregular basis over the period: The Montreal Herald and Daily Commercial Gazette, The Montreal Transcript and Commercial Advertiser, and The Pilot and Evening Journal of Commerce. Montreal Price of Wheat: Monthly, Jan. 1841 - Dec. 1871. Wholesale price at Montreal are those of ‘Upper Canadian spring’ wheat. In the early years there were gaps in quotations over the winter months For the period Dec. 1850 to June 1851 the price reported here is that of Lower Canada (Red) wheat; where there are overlapping observations it is evident that the two wheat types traded at about the same price. Prior to 1850 wheat was described as 'best Upper Canadian' wheat and 'best' to 'medium' quality. Note: there are (winter) months when no trade was recorded and the series is not continuous until 1850. In some winter months of high prices elsewhere winter trades at Montreal were reported, such as in 1846 and 1847. It is reported in shillings (Canadian currency) and thereafter in $Can. per bushel. Montreal Price of Flour: Monthly, Jan. 1841 - Dec. 1871. Wholesale price at Montreal are those of ‘extra superfine’ (also called ‘Canada extra superfine’) flour. Note: there are (winter) months when no trade was recorded and the series is not continuous until 1850. In some winter months of higher than normal prices elsewhere, winter trades at Montreal were reported such as in 1846 and 1847. It is reported in shillings (Canadian currency) and thereafter in $Can. per barrel of 196 lbs.
page 26
Freight Rates, 1850 – 1871. The New York – Liverpool freight rates are from The New York Daily Times, The New York Tribune and The New York Journal of Commerce. They are the lowest rate reported as a transaction on the third Thursday of each month or the nearest date in the case of no newspaper publication or no transactions. Wheat Freight Rates: Monthly, 1850 – 1871.These rates are those for flour shipped in bags (sacks) to Liverpool by sailing ship. Usually the reports were very brief and it is possible that some rates for bulk wheat carriage (bagged on voyage) are included. There are a few gaps in the series. The rates were originally reported in pence (d.) stg. per bushel. Flour Freight Rates: Monthly, 1850 – 1871.These rates are those for flour shipped in barrels of 196 lbs. to Liverpool by sailing ship. Usually the reports were very brief and it is very likely that some rates for flour transported by steamship are included. There are a few gaps in the series. By 1868 the steamer and sail freight rates for flour are reported separately. The rates were reported in shillings (s.) stg. per barrel.
page 27
References Ankli, Robert E., “The Reciprocity Treaty of 1854”, Canadian Journal of Economics, IV, No. 1, (1971), 16. Berry, Thomas Senior, Western Prices Before 1861, A Study of the Cincinnati Market, Cambridge, Mass.: Harvard University Press,1943. Buffalo Chamber of Commerce, Annual Reports. Buffalo, Various Years. Burton, F.W., “Wheat in Canadian History”, Canadian Journal of Economics and Political Science, III, No.2, (1937), pp. 210-17. Calomiris, Charles W. and Schweikart, Larry, “The Panic of 1857: Origins, Transmission, and Containment”, Journal of Economic History, 51, 4, (December 1991), pp. 807-34. Capper, Charles, The Port and Trade of London, Smith, Elder and Co., London,1862. Clark, John G., The Grain Trade in the Old Northwest, Urbana and London, 1966. Ejrnaes, Mette and Persson, Karl Gunnar “Market Integration and Transport Costs in France 1825 – 1903: A Threshold Error Correction Approach to the Law of One Price”, Explorations in Economic History, 37, (2000), pp. 149 – 173. Fornari, Harry, Bread Upon the Waters; A History of United States Grain Exports, Aurora Publishers, Nashville / London, 1973. Harley, C. Knick, “Transportation, the World Wheat Trade, and the Kuznets Cycle, 1850 - 1913”, Explorations in Economic History, 17, No. 2, (1980) pp. 218-50. Harley. C. Knick, ed. (1996), The Integration of the World Economy, 1850-1914,. Edward Elgar,Cheltenham. Hunt’s Merchants Magazine, New York, (various years). Klovland, Jan Tore, "Zooming in on Sauerbeck: Monthly Wholesale Prices in Britain, 1845 - 1890", Explorations in Economic History, 30, No. 2, (1993) pp. 195 - 228. Klovland, Jan Tore, “Business Cycles, Commodity Prices and Shipping Freight Rates: Some Evidence from the Pre-WW I Period”, Norwegian School of Economics and Business Administration, manuscript, n.d.. Lawes, J.B. and Gilbert, J.K., "On The Home Produce, Imports, Consumption, And Price Of Wheat, Over Forty Harvest Years, 1852-3 To 1891-92", Journal Of The Royal Agricultural Society Of England, Volume 4, (1893), pp. 77 - 135.
page 28
McCalla, D., “The Commercial Policies of the Toronto Board of Trade 1850-1860.” Canadian Historical Review, Vol. 50, (March,1969), pp. 51-67. McCalla, D., “The Internal Economy of Upper Canada: New Evidence on Agricultural Marketing Before 1850”. Agricultural History, Vol. 59, 3 (July, 1985), pp. 397-416. Michell, H., “Notes on Prices of Agricultural Commodities in the United States and Canada, 1850 1934”, Canadian Journal of Economics and Political Science, I, (May, 1935), pp. 269-271. Milwaukee Chamber of Commerce, Annual Reports of the Trade and Commerce of the City of Milwaukee. Milwaukee, various years. Montreal Board of Trade, Annual Report on the Commerce of Montreal, Montreal, various years. Montreal Herald and Daily Commercial Gazette, Annual Reports on the Commerce of Montreal (titles vary), Jan. of each year, Montreal, from 1863. More, R. Jasper, “Sale of Corn by Weight”, Journal of the Royal Agricultural Society of England, 3rd. Series, II, (1891), pp. 717-29. Nason, James M. and Paterson, Donald G., Bulk Commodities and the Liverpool and London Markets of the Mid-19th Century, Working Paper 2003 – 29a, Federal Reserve Bank of Atlanta, 2004. Officer, L. H and Smith, L. B., “The Canadian-American Reciprocity Treaty of 1855 to 1866”, Journal of Economic History, 28, No. 4 (1968), pp. 598-623. O’Rourke, Kevin and Williamson, Jeffrey G., Globilization and and History, The Evolution of a Nineteenth-Century Atlantic Economy, The MIT Press, Cambridge, Mass., 1999. O’Rourke, Kevin, “The Repeal of the Corn Laws and Irish Emigration”, Explorations in Economic History, 31, No. 1, (1994), pp. 120 -138. O’Rourke, Kevin “The European Grain Invasion, 1870 – 1913”, Journal of Economic History, 57, No. 4, (1997), pp. 775 – 801. O'Rourke, K.H., Taylor, A.M., Williamson, J.G., “Factor Price Convergence in the Late Nineteenth Century”, International Economic Review, 37, (1996), pp. 499-530. Passingham, W. J., London’s Markets; Their Origin and History, Sampson Low, Martin and Co.: London, n.d. Paterson, Donald G. and Shearer, Ronald A., “Canada and the US Greenback Inflation” in Minting, Monetary Circulation and Exchange Rates, eds. E. Van Cauwenberghe and F. Irsigler, (Trier: Verlag Trierer Historische Forschungen, 1984), pp. 313 – 322.
page 29
Paterson, Donald G. and Shearer, Ronald A., “A Tael of Two Cities”, presented to the Annual Meetings of the Canadian Quantitative Economic History Conference, Department of Economics Discussion Paper DP01 - 8, University of British Columbia, Vancouver, 1989. Paterson, Donald G. and Shearer, Ronald A., “Wheat, Railways and Cycles: The 1840s Reassessed”, presented to the Annual Meetings of the Canadian Economics Association, 2000, Department of Economics Discussion Paper DP01 – 17, University of British Columbia, Vancouver, 2001. Paterson, Donald G. and Shearer, Ronald A. “The History of Prices in Canada, 1840 - 1871; A New Wholesale Price Index”, Canadian Journal of Economics, 36, 1, (2003), pp. 241-268. Perren, Richard, “Structural Change and Market Growth in the Food industry: Flour Milling in Britain, Europe, and America, 1850 – 1914”, Economic History Review, 2nd Ser., XLIII, 3, (1990), pp. 420 – 437. Persson, Karl Gunnar, “ ‘Mind the Gap’! Transport Costs and Price Convergence in the 19th Century Atlantic Economy”, Discussion Paper 02 -02, Institute of Economics, University of Copenhagen, 2002. Rothstein, Morton, American Wheat and the British Market, 1860 - 1905, Ph. D. Thesis, Ithaca, N. Y.: Cornell University, 1960. Rothstein, Morton, “Antebellum Wheat and Cotton Exports: A Contrast in Marketing Organization and Economic Development”, Agricultural History, Vol. 40 (Jan., 1966), pp. 91-100. S. McKee, "Canada's Bid for the Traffic of the Middle-West", Report of the Canadian Historical Association, Toronto,1940. Taylor, Alan M., “Sources of Convergence in the Late Nineteenth Century”, European Economic Review, 43, (1999), pp. 1421-1445. Toledo Chamber of Commerce, Annual Reports. Toledo, various years. Toronto Board of Trade, Annual Commercial and Financial Review. Toronto, various years. United Kingdom (1842). “An Act to Amend the Laws for the Importation of Corn”, The Statutes of the United Kingdom of Great Britain and Ireland. London, Her Majesty's Printers. 1842 (5 & 6 Victoria). United Kingdom, Statistical Abstract for the United Kingdom, H.M.S.O., London, 1852-1872. United States (1846), “Public Laws of the United States of America of the 29th Congress, 1845 – 46”, United States Statutes at Large, Vol.9, Charles C. Little and James Brown, Boston. Also Vol. 11 of 1859.
page 30
United States, The Report of the Commissioner of Agriculture, Department of Agriculture, GPO: Washington,1868. Warren, George F. and Pearson, Frank A., Prices, John Wiley and Sons: New York, 1933. Williamson, Jeffrey G., “The Impact of the Corn Laws Just Prior to Appeal”, Explorations in Economic History, Vol. 27, No. 2, (1990), pp. 123-156.
page 31
Table 1. Wheat Price Differentials in London, 1841-1871 and by Decades: Descriptive Statistics In Gold $US per bushel.
1841-1871 (372 observations) µ Med.
σ
Gazette Kent-Essex
Gazette Norfolk
Kent-Essex Norfolk
0.479462 0.410000 0.712800
0.743065 0.680000 0.671555
0.265188 0.250000 0.321821
0.656583 0.595000 0.851339
0.925917 0.815000 0.777492
0.270667 0.250000 0.274954
0.407333 0.425000 0.646537
0.705917 0.680000 0.642919
0.299917 0.250000 0.388556
0.384015 0.320000 0.598446
0.610606 0.560000 0.550497
0.228636 0.130000 0.291573
1841-1850 (120 observations)
µ
Med.
σ
1851-1860(120 observations)
µ
Med.
σ
1861-71 (132 observations)
µ
Med.
σ
µ mean; Med. Median; σ standard deviation.
page 32
Table 2. Tests for Equality of Means and Variances, Monthly Wheat Prices. Null hypothesis of equality in sub-periods; 5% confidence limits.
1841 - 1851 Corn Law Abolition (Sept. 1846)
Equality of Means deg. of freedom t-test
Sub-Sample Means( µ) & Standard Deviations (σ)
Equality of Variances deg. of freedom F-test Reject
µ0
µ1
σ0
σ1
Gazette Wheat
130
t=2.685
67, 63
F=4.088
Reject
1.662
1.510
0.204
0.413
London Wheat (Essex/Kent)*
130
t=1.523 Not Reject
67, 63
F=4.957
Reject
1.400
1.480
0.175
0.390
London Wheat (Norfolk)
130
t=0.437 Not Reject
67, 63
F=6.668
Reject
1.350
1.380
0.164
0.424
New York Wheat (Genessee)#
75
t=2.354
12, 63
F=1.375
Not Reject
1.123
1.269
0.178
0.209
Toronto Wheat (Fall)
130
t=1.232 Not Reject
63, 67
F=1.739
Reject
0.740
0.770
0.149
0.114
Toronto Wheat (Red)
130
t=5.794
Reject
47, 83
F=1.006
Not Reject
0.920
1.360
0.344
0.343
Montreal Wheat (UC Spring)
130
t=2.695
Reject
83, 47
F=1.064
Not Reject
1.139
1.312
0.362
0.030
New York Wheat (Genessee)
130
t=1.528
Not Reject
83, 47
F=1.377
Not Reject
1.447
1.567
0.474
0.402
Reject
# Incomplete pre-1845 data. 1851 - 1861 Canada-USA Free Trade (Jan. 1855)
0 pre-event, 1 post-event * price data for the port of Liverpool (not presented here) conformed to the London price tests.
page 33
Table 3. British Imports of Wheat from Selected Sources, 1850 – 1859. 000s of bushels
British North America 1850 1851 1852 1853 1854 1855 1856 1857 1858 1859
70 173 275 677 145 117 895 918 807 54
North United American States Total 806 1,619 3,869 5,705 3,341 1,991 10,233 5,206 4,757 295
876 1,793 4,143 6,382 3,486 2,108 11,128 6,124 5,564 349
Russia
Prussia
Total
5,106 5,593 5,869 8,567 4,055 0 6,076 5,651 4,898 9,893
6,662 5,569 3,616 9,158 5,382 4,289 1,781 6,930 5,008 6,174
29,912 30,496 24,482 39,323 27,450 21,342 32,583 27,504 33,934 32,007
Source: U.K., Statistical Abstract for the United Kingdom, HMSO, various years.
Table 4. Shipments of Wheat and Flour from New York and Philadelphia to Great Britain and Ireland, During Harvest Months. 1st September to mid-November 000s of bushels 1,256 443 92
1864 1865 1866
Flour, 000s of barrels 39 65 30
Source: New York Tribune, 19 Nov., 1866.
Table 5. Wheat Production in the United States in the Late Civil War and Post-war Periods, 1863 – 1867.
1863 1864 1865 1866 1867
Bushels
Acres
Value of crop
States not in rebellion Bushels
000s
000s
$000s
000s
197,993 294,345 247,330 333,774 224,924
173,678 160,696 148,523 113,000 n.a.
173,678 160,696 148,523 152,000 260,146
13,099 13,159 12,305 15,424 19,181
Source: United States, The Report of the Commissioner of Agriculture, 1868, p. x.
page 34
Figure 1. London Price of Wheat (Kent - Essex) and the Gazette Price, Monthly, 1841 - 1871. 3.50
2.50 Gazette 2.00 1.50 1.00
Kent - Essex
Jan-71
Jan-66
Jan-61
Jan-56
Jan-51
Jan-46
0.50 Jan-41
Gold $US per bushel
3.00
page 35
Figure 2 Panel a. Wheat Prices: London and New York, Monthly, 1841 - 1871.
3.50 London
Gold$USper bushel
3.00
2.50
2.00
1.50
1.00
Jan-66
Jan-71
Jan-66
Jan-71
Jan-61
Jan-56
Jan-51
Jan-46
Jan-41
New York 0.50
Panel b. Flour Prices: London and New York, Monthly, 1841 - 1871.
14.00 London
10.00
8.00
6.00
4.00
Jan-61
Jan-56
Jan-46
Jan-41
2.00
New York
Jan-51
Gold$USper barrel (196lbs.)
12.00
Panel c. Wheat and Flour: London - New York Price Differentials, Percentage of the London Price, Monthly, 1841 - 1871.
60.0%
Flour
40.0%
0.0% -20.0% -40.0% -60.0% Wheat
Jan-71
Jan-66
Jan-61
Jan-56
Jan-51
-100.0%
Jan-46
-80.0%
Jan-41
Percentage
20.0%
page 36
Figure 3. Panel a. Wheat Prices at New York, Montreal and Toronto, Monthly, 1841 - 1850.
2.50
Gold $US per bushel
2.00 New York 1.50
Montreal
1.00
0.50 Toronto
Jan-49
Jan-47
Jan-45
Jan-43
Jan-41
0.00
Panel b. Flour Prices at New York, Montreal and Toronto, Monthly, 1841 - 1850. 10.00 New York
8.00 7.00
Montreal
6.00 5.00 4.00 3.00
Toronto
2.00 1.00
Jan-49
Jan-47
Jan-45
Jan-43
0.00 Jan-41
Gold $US per barrel (196 lbs.)
9.00
page 37
Figure 4. Panel a. Wheat: New York - Toronto and New York - Montreal Price Differentials, Monthly, 1841 - 1871.
1.20 NY - Toronto
Gold $US per bushel
1.00 0.80 0.60 0.40 0.20 0.00 NY - Montreal
-0.20
Jan-71
Jan-66
Jan-61
Jan-56
Jan-51
Jan-46
Jan-41
-0.40
Panel b. Flour: New York - Toronto and New York - Montreal Price Differentials, Monthly, 1841 - 1871.
5.00
NY - Toronto 3.00 2.00 1.00 0.00 NY - Montreal
-1.00 -2.00
Jan-71
Jan-66
Jan-61
Jan-56
Jan-51
Jan-46
-3.00 Jan-41
Gold $US per barrel (196 lbs.)
4.00
page 38
Figure 5 London: Wheat and Flour Prices (Gold Dollar Equivalents), Monthly, 1845 - 1849.
3.50
14.00 13.00
Wheat
11.00
2.50
10.00 2.00
9.00 8.00
1.50
7.00 Flour
6.00
1.00
5.00
Jan-49
4.00 Jan-47
0.50 Jan-45
Wheat Gold $US per bushel
12.00
Flour: Gold $US per barrel (196 lbs.)
3.00
page 39
Figure 6 Panel a. Wheat Prices in the late 1840s, London, New York, Montreal and Toronto, Monthly, Monthly, 1845 - 1849. 3.50 3.00 Gold $US per bushel
London 2.50 2.00 New York 1.50 1.00 0.50
Montreal
Toronto
Jan-49
Jan-47
Jan-45
0.00
Panel b. Flour Prices in the late 1840s, London, New York, Montreal and Toronto, Monthly, 1845 - 1849.
London
12.00 10.00
New York
8.00 6.00 4.00 Toronto
2.00
Montreal
Jan-49
Jan-47
0.00 Jan-45
Gold $US per barrel (196 lbs.)
14.00
page 40
Figure 7 Panel a. Wheat Prices in London, New York, Montreal and Toronto, Monthly, 1852 - 1858. 3.00 New York 2.50 Gold $US per bushel
London 2.00 1.50 Montreal
1.00
Toronto 0.50
Jan-58
Jan-57
Jan-56
Jan-55
Jan-54
Jan-53
Jan-52
0.00
Panel b. Flour Prices in London, New York, Montreal and Toronto, Monthly, 1852 1858. 14.00
10.00 8.00 6.00 4.00 2.00
Jan-58
Jan-57
Jan-56
Jan-55
Jan-54
Jan-53
0.00 Jan-52
Gold $US per barrel (196 lbs.)
12.00
page 41
Figure 8
5.00 Flour
4.00
3.00
2.00
1.00
0.00 Wheat -1.00
Jan-58
Jan-57
Jan-56
Jan-55
Jan-54
Jan-53
-2.00 Jan-52
Gold $US: per bushel of wheat: per barrel (196 lbs.) of flour
Panel a. Wheat and Flour Price Differentials, London and New York, Monthly, 1852 - 1858.
Panel b. New York - Liverpool Freight Rates, Wheat and Flour, Monthly, 1852 - 1858. 1.20
0.30
1.00
0.25
0.80
0.20
0.60
0.15
0.40
0.10
Flour: RHS
0.20
0.05
0.00 Jan-58
Jan-57
Jan-56
Jan-55
Jan-54
Jan-53
Jan-52
0.00
Gold $US per barrel (196 lbs.)
Gold $US per bushel
Wheat: LHS
page 42
Figure 9. Panel a. London - New York Wheat and Flour Price Differentials, Monthly, 1860 - 1869. Differentials as a % of the London Price 60.0% Flour
% of the London Price
40.0% 20.0% 0.0% -20.0% Wheat
-40.0% -60.0% -80.0%
Jan-68
Jan-66
Jan-64
Jan-62
Jan-60
-100.0%
Panel b. New York - Liverpool Freight Rates for Wheat and Flour, Monthly, 1860 1868. 0.35
Flour LHS
indicates rates for corn when no rates for wheat reported.
0.90 0.80
0.25
0.70 0.60
0.20
0.50 0.15
0.40 Wheat RHS
0.10
0.30 0.20
0.05
0.10
0.00 Jan-68
Jan-66
Jan-64
Jan-62
Jan-60
0.00
Flour: Golf $US per barrel (196 lbs.)
0.30 Wheat: Gold $US per bushel
1.00
page 43
Figure 10 Flour Prices at New York, Montreal and Toronto, Monthly, 1865 - 1868. 12.00 New York: Extra Genesee
8.00
6.00 Montreal: Superfine Toronto: Superfine
4.00
2.00
Jan-68
Jan-67
Jan-66
0.00 Jan-65
Gold $US per barrel (196 lbs.)
10.00
