In our previous posting on this subject, we discovered that the amount of new capital formation in the United States from 1830 to 1930 could not possibly have been financed out of existing monetary resources. Not only did insufficient savings exist in the system, the amount of new capital formation of all kinds expanded geometrically, not as a small increment of existing wealth. If savings were the source of financing for new capital, we would see a slow expansion and growth rate determined by the rate of savings.
Instead, what Dr. Harold G. Moulton observed was a rapidly expanding industrial, commercial, and agricultural accumulation of investment many times greater than the rate of savings. Further, in each and every case, periods of intense capital formation were preceded not by increases in the rate of savings, but by substantial "dissaving," that is, negative rates of savings. Paradoxically, the amount of new capital formed at times approached total income (GDP) in the economy in the prior period! If capital formation were thus financed by cutting consumption and saving, we would have to conclude that not only was consumption being reduced, it was being almost completely eliminated! Instead, Moulton found that consumption was increasing. Where did the money come from?
The usual glib answer we get from economists and a number of historians is that the financing of America's phenomenal growth came from Europe; that vast quantities of gold and silver came into the United States to finance economic growth.
Contradicting this, Europe in the 19th century was in desperate need of financial capital to finance its own economic development. It could not afford to be sending money overseas to finance the economic growth of an increasingly powerful trade rival.
When specie (gold and silver) was imported into the United States in the first half of the 19th century, it was most often in exchange for domestic coinage; there was at best a replacement, not a positive inflow of specie (precious metals); at worst gold and silver flowed out of the country in payment of foreign debts and for the purchase of manufactured goods to supplement the products of America's nascent industrial base.
From 1821 through 1833, in fact, when U.S. gold was undervalued, there was an aggregate net outflow of gold in the amount of $260,036. (Condy Raguet, A Treatise on Currency & Banking (1840), 18. Raguet's source was official reports of the Congress.) From 1834 through 1838 when gold was overvalued due to President Andrew Jackson's alteration of the official ratio between gold and silver, there was a net inflow of gold in the amount of $49,068,774 (Ibid.). This seriously upset the balance of trade, and caused silver to flow out of the country in compensation. This thereby decreased the available supply of precious metals to almost the same degree that it increased it, to say nothing of setting off "Hard Times," the Great Depression of the 1830s.
If, however, Europe was not the source of financing for America's industrial growth in the 19th century, what was?
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This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
