year. This monetary inflation was sparked by the central bank,
which increased its notes and deposits from January 1830 to Jan-
uary 1832 by 45.2 percent.
4
There is no question, however, that the money supply and the
price level rose spectacularly from 1833 to 1837.
Total money
supply rose from $150 million at the beginning of 1833 to $276
million four years later, an astonishing rise of 84 percent, or 21
percent per annum. Wholesale prices, in turn, rose from 84 in the
spring of 1834 to 131 in early 1837, a rise of 52 percent in a lit-
tle less than three years—or an annual rise of 19.8 percent.
The monetary expansion, however, was not caused by state
banks going hog wild. The spark that ignited the inflation was an
unusual and spectacular inflow of Mexican
silver coins into the
United States—brought about by the minting of debased Mexican
copper coins which the Mexican government tried to keep at par
value with silver. The system of fractional reserve banking, how-
ever, fundamentally was to blame for magnifying the influx of
specie and pyramiding notes and deposits upon the specie base. In
1837, the boom came to an end, followed by the inevitable bust,
as Mexico was forced to discontinue its copper coin issue by the
outflow
of silver, and the Bank of England, worried about infla-
tion at home, tightened its own money supply and raised interest
rates.
5
The English credit contraction in late 1836 caused a bust
in the American cotton export trade in London, followed by con-
tractionist pressure on American trade and banks.
In response to this contractionist pressure—demands for
specie—the banks throughout the United States (including the old
210
The Mystery of Banking
4
See Peter Temin,
The Jacksonian Economy
(New York: W.W. Norton,
1969).
5
Mexico was shown to be the source of the specie inflow by Temin,
Jacksonian Economy
, p. 80, while the cause of the inflow in the minting of
debased Mexican copper coins is pinpointed in Hugh Rockoff, “Money,
Prices, and Banks in the Jacksonian Era,” in R. Fogel and S. Engerman, eds.,
The Reinterpretation of American Economic History
(New York: Harper &
Row, 1971), p. 454.
Chapter Fourteen.qxp 8/4/2008 11:38 AM Page 210
BUS) promptly suspended specie payments in May 1837. The
governments allowed them to do so, and continued to receive the
notes in taxes. The notes began to depreciate at varying rates, and
interregional trade within the United States was crippled.
The banks, however, could not hope to be allowed to con-
tinue on a fiat basis indefinitely, so they reluctantly began con-
tracting their credit in order to go back eventually on specie.
Finally, the New York banks were compelled by law to resume
paying
in specie, and other banks followed in 1838. During the
year 1837, the money supply fell from $276 million to $232 mil-
lion, a large drop of 15.6 percent in one year. Specie continued to
flow into the country, but increased public distrust in the banks
and demands to redeem in specie put enough pressure on the
banks to force the contraction. In response, wholesale prices fell
precipitately, by over 30
percent in seven months, declining from
131 in February 1837 to 98 in September of that year.
This healthy deflation brought about speedy recovery by
1838. Unfortunately, public confidence in the banks returned as
they resumed specie payment, so that the money supply rose
slightly and prices rose by 25 percent. State governments ignited
the new boom of 1838 by recklessly
spending large Treasury sur-
pluses which President Jackson had distributed pro rata to the
states two years earlier. Even more money was borrowed to spend
on public works and other forms of boondoggle. The states
counted on Britain and other countries purchasing these new
bonds, because of the cotton boom of 1838. But the boom col-
lapsed the following year, and the states had to abandon the
unsound projects of the boom. Cotton prices
fell and severe defla-
tionist pressure was put upon the banks and upon trade. More-
over, the BUS had invested heavily in cotton speculation, and was
forced once again to suspend specie payments in the fall of 1839.
This touched off a new wave of general bank suspensions in the
South and West, although this time the banks of New York and
New England continued to redeem in specie. Finally, the BUS,
having played its role of precipitating boom and bust for the last
time, was forced to close its doors forever in 1841.
Do'stlaringiz bilan baham: 
