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Published by EH.Net (May 2022).

Lawrence H. Officer. A New Balance of Payments for the United States, 1790–1919: International Movement of Free and Enslaved People, Funds, Goods and Services. New York: Palgrave Studies in American Economic History, Palgrave Macmillan, 2021. xxxiii + 415 pp. $150 (hardcover or paper), ISBN 978-3-030-66098-7.

Reviewed for EH.Net by John Devereux, Department of Economics, Queens College, City University of New York.

 

This book provides a definitive treatment of the U.S balance of payments from 1790 to 1919. There is rich U.S tradition in this area. The 1960 NBER volume Trends in the American Economy in the Nineteenth Century contained two seminal articles on U.S external transactions. Douglas North covered 1790 to 1840, while Matthew Simon covered 1840 to 1916. Three years later, Robert Lipsey produced his estimates of the U.S external terms of trade after 1879. North went on to win the Nobel Prize in Economics. Lipsey had a distinguished career at the NBER and Queens College. Simon, also of Queens College, died in 1968. For the last 60 years their magisterial work has formed the basis for what we know about U.S. external transactions over the eighteenth and early twentieth centuries.

Much has changed since the early 1960’s. So it is time for a fresh look at historical measures of the U.S balance of payments. Accordingly, Lawrence Officer set out to revise North and Simon. To accomplish this, he gathered the information, published and unpublished, that has appeared over the last six decades. He also revisited earlier sources – including sources missed by North and Simon. It has taken him ten years, but he has accomplished his task in this book.

Officer has two objectives. The first is to put the U.S balance of payments from 1790 to 1919, where the official series begin, on a consistent basis, as previous work joined together series which were often incomplete and which used different approaches and different measures. More importantly, Officer expands coverage and improves the quality of the estimates. It would take a much longer review to even list the improvements in existing series. But the creation of new measures of the U.S net asset position and better measures of service trade are particularly noteworthy. The effort required to accomplish all of this is immense.  Consider the estimates for tourism. This requires 82 series for ocean fares (p. 283). In addition, Officer has to construct a new U.S CPI, and he generates measures of domestic U.S passenger transportation for rail, stagecoaches, etc.

Officer’s thoroughness is shown by the fact that he revisits earlier work by going back to the original sources and correcting errors of transcription, etc. He accomplished all of this, it would appear, working on his own without an army of research assistants. North, Simon, and Lipsey benefitted greatly from the institutional support of the NBER. Alas, the NBER no longer fills this function and Officer works on his own. The resulting book is a model of scholarship – he presents all his results; he outlines his methods and assumptions; he is modest and thoughtful; and he is generous in his praise of earlier work. Indeed, he dedicates the book to North and Simon. North is, of course, a towering figure. But Simon is a forgotten scholar whose wonderful work deserves recognition. Officer’s criticisms, when he makes them, are measured and fair.

The book is a major contribution to U.S economic history. To be sure, it does not change the broad outlines of what we know about U.S trade and foreign indebtedness before 1919 – North and Simon did their work well. But Officer puts the estimates on a firmer basis. Take the external terms of trade. Officer covers commodity and service trade for the entire period where most work in economic history is for commodity trade. He improves deflators and replaces the fixed weight price indices with a more appropriate deflator. The result is that we now have an external terms of trade series for the U.S from 1790 to now that is superior to the estimates for other developed economies. Throughout, Officer either improves on previous work or he provides new series.

Overall, the book is a monumental effort and its mastery of disparate sources puts it on a par with classics such as Lebergott (1964). It will surely stimulate further research. Officer’s early work on the dollar-pound exchange rate is partly responsible for the literature on long run real exchange rates which rehabilitated purchasing power parity (see Lothian and Taylor, 1996). This book will have a similar impact. To provide one instance, the improved measures of U.S foreign assets/liabilities will facilitate work for economic history along the lines of Lane and Milesi-Ferretti (2007).

The book is not an easy read. Officer starts off with a review of previous estimates. Next, there is a long digression on the movement of people. Following this, he outlines how he constructs each series, chapter by chapter. Only at the end of the book does Officer draw the series together and talk about his overall results. I would prefer that he start with the big picture. Throughout, the writing is dense and assumes considerable knowledge. To understand the basic issues with historical measures of U.S external transactions, the reader is advised to consult North and Simon before starting Officer. There are other difficulties. Officer provides important new series, but the summary statistics do not indicate how they differ from the old. Given the extensive reliance on interpolation, it would also help if he gave some indication of possible error margins. All in all, these are minor quibbles. A more serious problem is that some of the most important series appear only as diagrams – including the external terms of trade and the various price series. This is due to space constraints, but it is unfortunate. The author, or the publisher, should consider making all the series available in spreadsheet form on their websites.

 

References

Lane, Philip R., and Gian Maria Milesi-Ferretti. (2007) “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004.” Journal of International Economics 73: 223-250.

Lebergott, Stanley. (1964) Manpower in Economic Growth: The American Record Since 1800. New York: McGraw-Hill.

Lipsey, Robert E. (1963) Price and Quantity Trends in the Foreign Trade of the United States. Princeton: Princeton University Press for the National Bureau of Economic Research.

Lothian, James R., and Mark P. Taylor. (1996) “Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries.” Journal of Political Economy 104: 488-509.

North, Douglass C. (1960) “The United States Balance of Payments, 1790-1860.” In NBER Conference on Research in Income and Wealth, Trends in the American Economy in the Nineteenth Century, Studies in Income and Wealth, Vol. 24. Princeton: Princeton University Press for the NBER.

Simon, Matthew. (1960) “The United States Balance of Payments, 1861- 1900.” In NBER Conference on Research in Income and Wealth, Trends in the American Economy in the Nineteenth Century, Studies in Income and Wealth, Vol. 24, Princeton: Princeton University Press for the NBER.

 

John Devereux is professor of economics at Queens College, City University of New York. His areas of research are International Economics and Economic History.

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